QUESTION THREE[25]

Netforce Security (Pty) Ltd's Statement of Financial Position for the 2019 and 2018 financial years

are below:

2019

R

2018

R

Assets

Non-current assets

7 500 000

6 500 000

Inventory

500 000

300 000

Receivables

450000

420 000

Cash

650 000

80 000

9100 000

7300 000

Equity and Liabilities

Share capital (R2 shares)

5000 000

4400 000

Share premium

200 000

100 000

Retained income

700 000

400 000

Long term debt

2 500 000

1 500 000

Payables

700 000

900 000

9 100 000

7300 000

The abbreviated Income Statement for the year ended 28 February 2019:

Amazon Limited

R

Sales (50% on credit)

3000000

Cost of Sales

2000 000

Depreciation

210 000

Interest expense

87000

Net Income before Tax

900 000

Dividends

330 000

Retained Income

300 000

Required:

3.1Calculate the following ratios for 2019 and comment. Ratios for 2018 are given in brackets.

3.1.1Current ratio (0,89 : 1)

3.1.2Acid test ration (0,56 : 1) (3)

3.1.3The debtors collection period (81 days) [all debtors are on 60 day accounts](4)

3.2Share capital and equity

3.2.1Calculate the earnings per share and dividends per share for 2019.(4)

3.2.2How many shares were issued in 2019?(2)

3.2.3Where the shares issued at a premium? If so, what was the premium per share? (2)

3.3Calculate the market to book ratio. Explain the significance of this ratio.(3)

3.4Calculate the return on equity using the Du Point Identity/Formula. Will management be happy with this return?(4)