Question Three years ago, Mrs. Wekesa retired from the Public Service. She invested substantially all her terminal benefits in the shares of ABC Ltd., a company quoted on the stock exchange. The dividend payments from this investment makes up a significant position of Mrs Wekesa's income. She was alarmed when ABC Ltd. dropped its year 2018 dividend to Sh.1.25 per share from Sh.1.75 per share which it had paid in the previous two years. Mrs Wekesa has approached you for advice and you have gathered the information given below regarding the financial condition of ABC Ltd. and the finance sector as a whole. ABC Ltd. Balance Sheets as at 31 October 2016 2017 2018 Sh.'000' Sh.'000' Sh.'000' Cash 15,250 14,400 8,000 Accounts receivable 80,320 87,800 134,400 Inventory 98,600 158.800 254,000 Total current assets 194,170 261,000 396,400 Land and buildings 25,230 27,600 25,000 Machinery 33,800 36,400 30,600 Other fixed assets 14,920 18,200 16.400 Total assets 268,120 343,200 468,400 Accounts and notes payable 34,220 73,760 135,848 Accruals 15,700 34,000 67,000 Total current liabilities 49,920 107,760 202,848 Long term debt 60,850 60,858 81,720 Ordinary share capital 115,000 115,000 115,000 Retained earnings 42,350 59,582 68,832 268,120 343,200 468,400 ABC Ltd. Income Statements for the year ending 31 October 2016 2017 Sh.000' Sh.'000' 2018 Sh.000' Sales (all on credit) 827,000 858,000 890,000 Cost of sales (661,600) (710,000) (712,000) Gross profit 165,400 148,000 178,000 General administrative and selling (63,600) (47,264) (51,200) expenses (25,400) (31,800) (38,200) Other operating expenses 76,400 68,936 88,600 Earnings before interest and tax (EBIT) (12.800) (26,800) (63,600) Interest expense 63,600 42,136 25,000 Net income before taxes (25,400) (16,854) (10,000) Taxes 38,200 25,282 15,000 Net income Number of shares issued 4,600,000 4,600,000 4,600,000 Per share data: Earnings per share (EPS) Dividend per share Sh. 8.30 Sh. 1.75 Sh. 5.50 Sh. 1.75 Market price (average) Sh.48.90 Sh.25.50 Sh. 3.26 Sh. 1.25 Sh.13.25 Quick ratio Currentratio Inventory turnover Average collection period Fixed asset tumover Total assets turnover Industry Financial Ratios (2018) 1.0 2.7 7 times 32 days 13.0 times 2.6 times Net income to net worth Net profit margin on sales Price-Eamings (P/E) ratio Debt/Equity ratio Notes: Industry Financial rations 1.8% 3.5% 6 times 50% 1.Industry ratios have been roughly constant for the past four years. 2.Inventory tumover total assets turnover and fixed assets tumover are based on the year-end balance sheet figures. Required: Calculate and interpret appropriate liquidity, profitability, efficiency and leverage ratios (Three ratios per category)