The financial manager of IWA AND SONS LIMITEDprepared the following financial information:
IWA AND SONS LIMITED

EXTRACT OF STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2021

R
Sales (all credit) 2 200 000
Cost of sales 1 000 000
Operating profit 600 000
Profit after tax 350 000

IWA AND SONS LIMITED

EXTRACT OF STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER
2021

2021 (R) 2020 (R)
Non-current assets 1 700 000 1 400 000
Inventories 85 000 75 000
Trade and other receivables(Accounts receivable
only)

130 000 115 000

Cash and cash equivalents 80 000 100 000
Shareholders’ equity 1 250 000 950 000
Non-current liabilities 600 000 475 000
Current liabilities 145 000 265 000

Additional information:
The authorised share capital of the company consists of 800 000 ordinary shares of
which 500 000 shares have been issued.

Required:
2.1 Calculate each of the following ratios for 2021 (answers expressed to two decimal places):
2.1.1 Operating margin (3)
2.1.2 Debt to equity (3)
2.1.3 Debtors collection period (3)
2.2 Comment on the liquidity position of the company over the two-year period (2020-2021). Use
two relevant ratios to motivate your answer. (7)
2.3 Use a relevant ratio to comment on the effectiveness with which the company has employed
inventories during 2021. (4)
2.4 As a shareholder, would you be satisfied with the return on your investment in the
company? Motivate your answer with an appropriate ratio. (5)

Answer rating: 100% (QA)

Ratio Formula 2021 2020 Operating margin Operating profitrevenue 2727 Debt to equity DebtEquity 048 Debtors collection period 365SalesAvg accounts rec... View the full answer