QUESTION 4

(20 Marks)

4.1

Acid test ratio

(3 marks)

Return on capital employed

(3 marks)

Trade receivables period

(3 marks)

Trade payables period

(3 marks)

Operating profit margin

(2 marks)

Inventory turnover period

(3 marks)

4.2

Weighted average cost of capital

=

=

=

(3 marks)

QUESTION 4 Use the information provided to answer the questions Study the ratios provided below which were calculated from a project of Colchester Limited for 2020 and 2019 and provide suitable comments for each ratio. (17 marks) INFORMATION Ratio 2020 2019 Acid test ratio 0.91:1 1.32:1 (3 marks) Return on capital employed 16.18% 24 28% (3 marks) Trade receivables period 38.5 days 29.45 days (3 marks) Trade payables period 30 days 60 days (3 marks) Operating profit margin 20 47% 29.69% (2 marks) Inventory turnover period 60 days 40 days (3 marks) Additional information Credil terms to debtors are 30 days and credit terms offered by creditors are 80 days The narrata VOX Acid test ratio 0.91:1 1.32:1 (3 marks) Return on capital employed 16.18% 24.28% (3 marks) Trade receivables period 38.5 days 29.45 days (3 marks) Trade payables period 30 days 60 days (3 marks) Operating profit margin 20.47% 29.69% (2 marks) Inventory turnover period 60 days 40 days (3 marks) Additional information : Credit terms to debtors are 30 days and credit terms offered by creditors are 60 days. : The interest rate on long-term borrowing is 12% 42 Calculate the weighted average cost of capital from the information provided below (3 marks) INFORMATION Mac Limited intends investing in a new project Finance can be obtained from banks at 15% and dividends are expected to be paid out to investors at a rate of 12% of ordinary shares. Assets are financed in the ratio 3 2 in favour of equity o