Use the information provided below to answer the following questions:

2.1Comment on the financial result of the company.

2.2Is the company efficient in its collection of debts arising from credit sales? Motivate your answer by using an appropriate ratio.

2.3Will creditors allow credit under distress business conditions to Silverstone Limited? Explain your answer with the relevant ratio.

2.4Would the shareholders be happy with the profitability of the company? Use an appropriate ratio to motivate your answer.

2.5Calculate the ratio for 2021 that reflects how the stock market is judging the companys earnings performance and prospects.

2.6Explain the impact on the cost of sales in the statement of comprehensive income if LIFO rather than FIFO method of valuing inventories is used during periods of rising prices.

INFORMATION

Extracts of the statement of comprehensive income and statement of financial position of Silverstone Limited for 2021 and 2020 are as follows:

Statement of Comprehensive Income for the year ended 31 December:

2021 (R) 2020 (R)

Sales 6 400 000 5 440 000

Cost of sales 4 000 000 3 264 000

Gross profit 2 400 000 2 176 000

Operating expenses 960 000 1 056 000

Operating profit 1 440 000 1 120 000

Profit before tax 1 280 000 1 040 000

Profit after tax 896 000 728 000