QUESTION THREE: [25]

The following information was selectively extracted from the accounting records of Hoskin Ltd as at 29 February 2020 (the end of their financial year):

NB: a. Shares are currently trading at R4,10 per share

Calculate:

3.1. The debtors average collection period and comment. (Last year was 37 days) Note: Debtors are given 30 days net to settle their accounts. (5)

3.2. The creditors payment period and comment (Last year was 88 days All creditors accounts are 90 days less 2%). (5)

3.3. The price to earnings ratio for 2020 and explain the significance of this ratio.(9)

3.4. The debt equity ratio and explain its significance to decision makers. (6)

2020(R) 2019(R) 2 200 000 1 200 000 240 000 Sales (50% on credit) Cost of Sales (80% of goods purchased on credit) Net Income after tax Tangible Assets Inventory Receivables Cash 1 500 000 1 470 000 200 000 300 000 100 000 220 000 50 000 620 000 250 000 410 000 210 000 65 000 Payables Loans at 9% p.a. Share Capital (500 000 ordinary shares at R2 each Retained Income Share premium 1 000 000 1 000 000 250 000 230 000 140 000 140 000 2020(R) 2019(R) 2 200 000 1 200 000 240 000 Sales (50% on credit) Cost of Sales (80% of goods purchased on credit) Net Income after tax Tangible Assets Inventory Receivables Cash 1 500 000 1 470 000 200 000 300 000 100 000 220 000 50 000 620 000 250 000 410 000 210 000 65 000 Payables Loans at 9% p.a. Share Capital (500 000 ordinary shares at R2 each Retained Income Share premium 1 000 000 1 000 000 250 000 230 000 140 000 140 000