QUESTION 3 REQUIRED Use the information provided below to answer the following questions: 3.1 Calculate the following ratios for 2020 only. Express the answers to two decimal places. 3.1.1 Gross margin 3.1.2 Current ratio 3.1.3 Debtors collection period 3.1.4 Creditors payment period 3.1.5 Return on equity 3.1.6 Debt to assets 3.1.7 Inventory turnover 3.2 Would the shareholders be satisfied with their return on investment? Why? 3.3 Is the current ratio for 2020 satisfactory? Explain. 3.4 Comment on the collection of debts from credit sales. INFORMATION Extracts of the financial statements of Santia Limited on 31 December: 2020 2019 R R Sales 3 850 000 Cost of sales 2 350 000 Operating profit 700 000 Company tax 179 200 Retained income 250 000 200 000 Non-current assets 895 000 950 000 Inventories 1 000 000 630 000 Non-current liabilities 400 000 550 000 Current liabilities (Accounts payable only) 240 000 150 000 Ordinary share capital 1400 000 1 000 000 Trade and other receivables (Accounts receivable only) 400 000 250 000 Cash and cash equivalents 5 000 70 000 Bank overdraft 10 000 Note: 1. Seventy percent (70%) of the sales are on credit. 2. Sixty percent (60%) of the purchases of inventory are on credit. 3. Company tax is calculated at 28% of the pre-tax profit. 4. The credit terms to debtors are 30 days. 5. All assets, equity accounts and liabilities are included in the extract of the financial statements provided above.
QUESTION 3 REQUIRED Use the information provided below to answer the following questions: 3.1 Calculate the following ratios for 2020 only. Express the answers to two decimal places. 3.1.1 Gross margin 3.1.2 Current ratio 3.1.3 Debtors collection period 3.1.4 Creditors payment period 3.1.5 Return on equity 3.1.6 Debt to assets 3.1.7 Inventory turnover 3.2 Would the shareholders be satisfied with their return on investment? Why? 3.3 Is the current ratio for 2020 satisfactory? Explain. 3.4 Comment on the collection of debts from credit sales. INFORMATION Extracts of the financial statements of Santia Limited on 31 December: 2020 2019 R R Sales 3 850 000 Cost of sales 2 350 000 Operating profit 700 000 Company tax 179 200 Retained income 250 000 200 000 Non-current assets 895 000 950 000 Inventories 1 000 000 630 000 Non-current liabilities 400 000 550 000 Current liabilities (Accounts payable only) 240 000 150 000 Ordinary share capital 1400 000 1 000 000 Trade and other receivables (Accounts receivable only) 400 000 250 000 Cash and cash equivalents 5 000 70 000 Bank overdraft 10 000 Note: 1. Seventy percent (70%) of the sales are on credit. 2. Sixty percent (60%) of the purchases of inventory are on credit. 3. Company tax is calculated at 28% of the pre-tax profit. 4. The credit terms to debtors are 30 days. 5. All assets, equity accounts and liabilities are included in the extract of the financial statements provided above.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 79E
Related questions
Question
Please answer 3.1.4 up until 3.1.7
Transcribed Image Text:QUESTION 3
REQUIRED
Use the information provided below to answer the following questions:
3.1
Calculate the following ratios for 2020 only. Express the answers to two decimal places.
3.1.1
Gross margin
3.1.2
Current ratio
3.1.3
Debtors collection period
3.1.4
Creditors payment period
3.1.5
Return on equity
3.1.6
Debt to assets
3.1.7
Inventory turnover
3.2
Would the shareholders be satisfied with their return on investment? Why?
3.3
Is the current ratio for 2020 satisfactory? Explain.
3.4
Comment on the collection of debts from credit sales.
INFORMATION
Extracts of the financial statements of Santia Limited on 31 December:
2020
2019
R
R
Sales
3 850 000
Cost of sales
2 350 000
Operating profit
700 000
Company tax
179 200
Retained income
250 000
200 000
Non-current assets
895 000
950 000
Inventories
1 000 000
630 000
Non-current liabilities
400 000
550 000
Current liabilities (Accounts payable only)
240 000
150 000
Ordinary share capital
1 400 000
1 000 000
Trade and other receivables (Accounts receivable only)
400 000
250 000
Cash and cash equivalents
5 000
70 000
Bank overdraft
10 000
1.
Seventy percent (70%) of the sales are on credit.
2.
Sixty percent (60%) of the purchases of inventory are on credit.
3.
Company tax is calculated at 28% of the pre-tax profit.
4.
The credit terms to debtors are 30 days.
5.
All assets, equity accounts and liabilities are included in the extract of the financial statements provided
above.
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