Required:

Required:

Round off your final answers to two decimals

5.1. Analyse the financial statements only for 2020 by calculating the following ratios and recommending 2 possible improvements for each ratio. If no improvement is needed, specify the reason.

1. Current ratio

2. Debtor's collection period

3. Creditor's payment period

Statement of income and operating expenses for the year ended 28 February 2020 2020 2019 R R Income 18 954 623 15 984 637 Cost of sales (7 202 756) (3 996 159) Gross profit 11 751 867 11 988 478 Other income Interest received 105 000 63 000 Operating expenses Accounting fees Bank charges Depreciation Employee cost (165 000) (189 780) (1 686 000) (939 600) (618 450) (58 780) (1 248 000) (1 173 660) Finance cost Fines and penalties Rent payments Water and electricity Profit before tax Taxation Profit after tax (150 000) (179 560) (1 186 000) (870 000) (408 450) (49 850) (960 000) (978 050) 7 269 568 (2 035 478) 5 234 090 5 777 597 (1 617 726) 4 159 871 Additional information: Interest on the money market account is 3% per year. Any value from 3 to 5 times interest earned is accepted by the company. Fines and penalties consist of traffic fines. . Interest on the bank overdraft is 8% per year. Gross profit margins for similar listed companies are 50%. Extracts from the policy of the company: o Customers are given credit on their accounts for 30 days. Creditors are paid 30 days from the date of purchase. Question 5 [35] You are the accountant at Lucky (Pty) Ltd and you have heard about the shares that the company wants to buy. You have noticed, however, that there are a few operating controls that can be improved before the share acquisition and you want to discuss this with the chief financial officer (CFO). The audited financial statements are as follows: Statement of financial assets and liabilities for the year ended 28 February 2020 2020 2019 R R Non-current assets Property, plant and equipment Land and buildings Motor vehicles 15 000 000 15 000 000 1 650 000 1 150 000 Machinery 6 780 000 4 780 000 Current assets Money market account (FNB savings account) 1 500 000 1 500 000 Trade debtors 1 980 000 1 750 000 1 580 000 1 380 700 Inventory Total assets 28 490 000 25 560 700 Equity and liabilities Equity Share capital Accumulated profit 2 000 000 2 000 000 12 430 000 10 780 000 Non-current liabilities Long-term loan 7 790 200 8 480 200 Current liabilities 1 200 000 750 000 Cheque account (ABSA overdraft) Trade payables 970 000 950 500 Other financial loans 1 499 800 2 600 000 2 600 000 Short-term portion of loan Total equity and liabilities 28 490 000 25 560 700