PROJECT FINANCIAL MANAGEMENT

QUESTION 3

1. REQUIRED

Use the information provided below to answer the following questions:

3.2.1	Calculate the following ratios for 2020. Where applicable, express answers to two	decimal
	places. Gross profit margin	(2)
	Operating profit margin	(2)
	Inventory turnover period	(2)
	Trade receivables period	(2)
	Trade payables period	(2)
	Return on capital employed	(2)
3.2.2	Comment on the liquidity position of the project for 2020 by calculating two
	appropriate ratios.	(6)
3.2.3	Suggest TWO (2) ways in which the trade receivables period maybe improved.	(2)

INFORMATION

The extracts of the financial statements for a project of Zengu Limited for 2020 and 2019 are provided below.

Extract of Income Statement for the year ended 31 December 2020
	R
Sales	1 920 000
Cost of sales	1 200 000
Operating profit	432 000
Profit before tax	384 000
Profit after tax	268 800

Extract of Statement of Financial Position as at 31 December:
	2020		2019
	R		R
Non-current assets	2 580 000		1 920 000
Inventories	532 000		480 000
Accounts receivable	300 000		504 000
Cash	440 000		336 000
	3 852 000		3 240 000
Equity	2 964 000		2 640 000
Non-current liabilities	580 000		340 000
Current liabilities (Accounts payable only)	308 000		260 000
	3 852 000		3 240 000

NOTE:

• Total purchases amounted to R1 252 000. All purchases are on credit.
• Ninety percent (90%) of all sales are on credit.