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): 2020(R) 2019(R) Sales (50% on credit) 2 200 000 Cost of Sales (80% of goods purchased on credit) 1 200 000 Net Income after tax 240 000 Tangible Assets 1 500 000 1 470 000 Inventory 200 000 300 000 Receivables 100 000 220 000 Cash 50 000 620 000 Payables 250 000 410 000 Loans at 9% p.a. 210 000 65 000 Share Capital (500 000 ordinary shares at R2 each 1 000 000 1 000 000 Retained Income 250 000 230 000 Share premium 140 000 140 000 NB: a. Shares are currently trading at R4,10 per share.

3 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.