QUESTION $2(20$ Marks$)$

REQUIRED

$2\mathrm{.}1$ Use the information provided below to calculate the ratios for $2022($expressed to two decimal places$)$

that would reflect each of the following:

$2\mathrm{.}1\mathrm{.}1$ The profit of the company relative to sales after deducting the cost of sales. $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}2$ The ability of the company to profitably utilize its capital, which includes both debt and

equity. $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}3$ The proportion of the total assets that are financed by total debt. $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}4$ The ability of the company to repay its short$-$term debts under distress conditions, on the

assumption that inventories would have no value at all. $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}5$ The portion of the company's profit that is allocated to each outstanding ordinary share. $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}6$ An indication of the percentage of profit that has been put back into the company. $(2$ marks$)$

$2\mathrm{.}2$ Comment on the following ratios that have been calculated for Sapphire Ltd:

$2\mathrm{.}2\mathrm{.}1$ Profit margin $(4$ marks$)$

$2\mathrm{.}2\mathrm{.}2$ Return on equity $(4$ marks$)$

INFORMATION

Excerpts of the financial data of Sapphire Ltd for $2022$ are as follows:

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED $31$ DECEMBER $2022$

R

Sales $7800000$

Cost of sales $5280000$

Operating profit $796800$

Interest expense $105600$

Profit before tax $691200$

Company tax $207360$

STATEMENT OF FINANCIAL POSITION AS AT $31$ DECEMBER $2022$

R

Assets

Non$-$current assets $2352000$

Inventories $3120000$

Accounts receivable $931200$

Cash $9600$

$6412800$

Equity and liabilities

Ordinary share capital $(704000$ shares$)1689600$

Retained earnings $1382400$

Long$-$term loan $(12\%$ p$.$a$.)888000$

Accounts payable $2092800$

Dividends payable $($for $2022)360000$

$6412800$

Additional information

$1.$ All purchases and sales of inventories were on credit.

$2.$ Inventories on $31$ December $2021$ amounted to R$2880000.$

$3.$ The following ratios were calculated for $2022$ and $2021$:

$20222021$

Profit margin $6\mathrm{.}20\%13\mathrm{.}63\%$

Return on equity $15\mathrm{.}75\%21\mathrm{.}85\%$

$4.$ The market prices of the company$$s shares for $2022$ and $2021$ were R$4\mathrm{.}00$ and R$3\mathrm{.}50$ respectively.