SECTION B [60 MARKS] Answer ALL questions in this section. QUESTION 1 Liquidity enterprise, a computer hardware manufacturer, has obtained accounting ratios relating to averages for similar organisations in the industry. The average ratios for the period 1 January 2016 to December 2016 are as follows:

Return on capital employed 21.6%

Net assets turnover 1.6 times

Gross profit margin 25%

Net profit (before tax) margin 10.5%

Current ratio 1.5:1

Quick ratio 0.8:1

Inventory holding period 42 days

Trade receivable collection days 41 days

Trade payables payment period 59 days

Debt to equity 35%

Dividend yield 5%

Dividend cover 4 times

The summarised financial statements for Liquidity for the period 1 January 2016 to 31 December 2016 are as follows:

Income statement BWP

Sales revenue 4 850 000

Cost of sales (3 740 000)

Gross profit 1 110 000

Other operating expenses (430 000)

Operating profit 680 000

Interest payable (68 000)

Loss on sale of obsolete stock (240 000)

Profit before tax 372 000

Tax (180 000)

Profit after tax 192 000 Changes in equity

Retained profits 1 January 2016 358 000

Net profit for the period 192 000

Dividend paid (180 000)

Retained profit 31 December 2016 370 000 Statement of financial position BWP BWP

Non-current assets 1 080 000

Current assets:

Inventory 550 000

Trade receivables 640 000 1 190 000

Total assets 2 270 000

Share capital and reserves:

Ordinary 50p shares 300 000

Retained profits 370 000

670 000

Non- current liabilities:

7% loan note 600 000

Current liabilities:

Bank overdraft 130 000

Trade payables 700 000

Tax 170 000 1 000 000

Total equity and liabilities 2 270 000 The following information is also relevant: - The non-current assets cost P7 200 000 and accumulated depreciation as at 31 December 2016 is P6 120 000

- Liquiditys ordinary shares averaged a market price of P12 throughout the period. Required: Calculate (to one decimal place) the ratios for Liquidity enterprise equivalent to those for the industry averages. (20 marks)