Required: Critically evaluate the credit policy of LGZA by analysing and providing insight on sales, credit losses, credit limit and receivables collection period.

QUESTION 1 [30 Marks] Lendlela Group ZA (LGZA) is a pharmaceutical group that comprises of a chain of retail pharmacies and manufactures an extensive range of branded and generic prescription drugs. These drugs are distributed through the group's own pharmacy and other pharmacies, hospitals and convenience stores. Summary extract from the Consolidated Financial Statements: Eighty percent of LGZA's total revenue is derived from credit sales. The group's credit policy states the following: - Credit limits are set for each debtor based on the debtor's credit rating. Sales to debtors may not exceed their credit limits; and - Total exposure to a single debtor may not exceed 4% of the total outstanding receivables balance. During the 2023 financial year, one of LGZA's debtors, Yakho Ltd., was liquidated. LGZA received R0.40 from the liquidators and the balance of R1.5 million was written off. Yakho had a credit limit of R2 Million. Credit losses amounted to R41 429000 in 2023 (2022: R47 980 000). The following represents some of the ratio's, percentages and calculations for the South African pharmaceutical industry: 4 HPFM440-1-Jul-Dec2023-SA2-LM-V6-06062023