You are preparing for a board meeting and the Financial Manager provided you with the following audited financial statements of RPP (Pty) Ltd for the year ended February 2020.

Statement of comprehensive income for the period ending 28 February 2020:

 

	Feb-18      R'000	Feb-19      R'000	Feb-20     R'000
Sales (revenue)	22 590 650	23 870 500	25 800 125
Cost of Sales	16 500 250	17 680 400	18 250 800
Gross profit	6 090 400	6 190 100	7 549 325
Expenses	4 200 500	4 500 600	4 700 450
Earnings before interest and tax (EBIT) (Operating profit)	1 889 900	1 689 500	2 848 875
Interest	190 566	260 768	290 780
Profit before tax (PBT)	1 699 334	1 428 732	2 558 095
Tax	475 814	400 045	716 267
Profit after tax	1 223 520	1 028 687	1 841 828
Number of ordinary shares	1 500 000	1 650 000	1 650 000
Earnings per share (EPS) cents	0.82	0.62	1.12
Dividends	250 000	250 000	250 000

 

 

Statement of financial Position as at 28 February 2020
	Feb-18  R'000	Feb-19      R'000	Feb-20      R'000
Assets:
Non-current assets	9 851 230	10 151 230	10 130 900
Property, plant, and equipment	7 850 450	7 650 450	7 450 450
Motor vehicles	1 350 780	1 650 780	1 780 450
Furniture & Fittings	650 000	850 000	900 000
Current Assets:	4 103 590	5 962 277	7 774 435
Inventory	2 260 308	2 179 775	2 000 088
Trade receivables	3 713 532	4 054 715	4 665 228
Cash And bank	- 1 870 250	- 272 213	1 109 119
Total Assets	13 954 820	16 113 507	17 905 335
Equity and Liabilities
Equity	5 534 320	6 613 007	8 204 835
Ordinary shares (1500000 shares @ R1 each)	3 000 000	3 300 000	3 300 000
Retained income	2 534 320	3 313 007	4 904 835
Non-Current Liabilities:	5 850 000	6 650 000	6 650 000
Long term loan	5 200 000	6 000 000	6 000 000
Shareholders loan account	650 000	650 000	650 000
Current Liabilities:
Trade Creditors	2 570 500	2 850 500	3 050 500
Total Equity and Liabilities	13 954 820	16 113 507	17 905 335

 

Required: 

a. Discuss the liquidity of the company. Support your answer with the necessary calculations. Include the cash conversion cycle as one of the calculations.

b. Discuss the solvency of the company. Support your answer with the necessary calculations.