QUESTION 2 (20 Marks)

Information Provided in question 1

REQUIRED Use the information provided in Question 1 to answer the following questions:

2.1 Calculate the following ratios for 2022 only. Express the answers to two decimal places.

2.1.1 Net profit margin (2 marks)

2.1.2 Average collection period (Use 360 days.) (2 marks)

2.1.3 Inventory turnover (2 marks)

2.1.4 Acid-test ratio (2 marks)

2.1.5 Debt to assets (2 marks)

2.1.6 Return on equity (2 marks)

2.1.7 Earnings yield (2 marks)

2.2 Comment on the return on equity calculated in question 2.1.6. (4 marks)

2.3 Refer to the appropriate ratio in question 2.1 and explain whether the company will be able to pay its short-term debts when business conditions are not favourable. (2 marks)

\begin{tabular}{|l|l|} \hline STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 \\ \hline & R \\ \hline Sales & 2304000 \\ \hline Cost of sales & (1228000) \\ \hline Gross profit & 1076000 \\ \hline Other operating income & 84000 \\ \hline Gross income & 1160000 \\ \hline Distribution expenses & (260000) \\ \hline Administrative expenses & (104000) \\ \hline Earnings before interest and tax & 796000 \\ \hline Interest income & 68000 \\ \hline Interest expense & (92000) \\ \hline Earnings before tax & 772000 \\ \hline Company tax & (184000) \\ \hline Earnings after interest and tax & 588000 \\ \hline \end{tabular} \begin{tabular}{|l|l|l|} \hline Long-term borrowings & 1000000 & 1600000 \\ \hline Current liabilities & 532000 & 556000 \\ \hline Accounts payable & 440000 & 492000 \\ \hline Company tax payable & 92000 & 64000 \\ \hline Total equity and liabilities & 2984000 & 2860000 \\ \hline \end{tabular}