REQUIRED

Use the information provided below to answer the following questions.

Note: Use the formulas provided in the formula sheet only (that appear below). Answers to the ratios must be expressed to two decimal places.

4.1 What percentage of the sales is made up of net income? (2 marks)

4.2 Calculate TWO (2) appropriate liquidity ratios and comment on the liquidity of the company. (6 marks)

4.3 Calculate the relevant ratios and comment on the effectiveness with which the company has employed the debtors and creditors. (6 marks)

4.4 Calculate TWO (2) appropriate ratios that would be used to assess the profitability of the company by examining the income from operations and the after-tax returns earned. Comment on your calculations. (6 marks)

INFORMATION

Excerpts of financial data of Markram Limited for 2022 are as follows:

Additional information

Ninety percent (90%) of the sales is on credit.

All purchases are on credit.

Credit terms to debtors are 60 days and credit terms from suppliers are 90 days.

\begin{tabular}{|l|r|} \hline Statement of Comprehensive Income for the year ended 31 December 2022 \\ \hline & \multicolumn{1}{c|}{R} \\ \hline Sales & 6000000 \\ \hline Cost of sales & 4000000 \\ \hline Opening inventory & 200000 \\ \hline Purchases & 500000 \\ \hline Closing inventory & 1200000 \\ \hline & 200000 \\ \hline Operating profit & 1000000 \\ \hline Interest expense & 270000 \\ \hline Profit before tax & \\ \hline Company tax & \\ \hline \end{tabular} \begin{tabular}{|l|r|} \hline Statement of Financial Position as at 31 December 2022 \\ \hline & \multicolumn{1}{|c|}{R} \\ \hline Non-current assets & 3500000 \\ \hline Inventories & 500000 \\ \hline Accounts receivable & 1400000 \\ \hline Cash & 2000 \\ \hline Bank overdraft & 30000 \\ \hline Ordinary share capital & 940000 \\ \hline Retained earnings & 132000 \\ \hline Long-term loan & 3600000 \\ \hline Accounts payable & 700000 \\ \hline \end{tabular}