Use the information provided below to calculate the ratios for 2021 (expressed to two decimal places) that would reflect each of the following: The time taken by the company to settle its debts with trade suppliers The amount of debt that the company uses to finance its assets The operational effectiveness of the company before considering interest income,interest expense and company tax.                                                                        What investors are willing to pay for the shares of the company with due considerationgiven to the profit generated by each share in

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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REQUIRED

  • Use the information provided below to calculate the ratios for 2021 (expressed to two decimal places) that would reflect each of the following:
    • The time taken by the company to settle its debts with trade suppliers
    • The amount of debt that the company uses to finance its assets
    • The operational effectiveness of the company before considering interest income,interest expense and company tax.                                                                     
  •  
  • What investors are willing to pay for the shares of the company with due considerationgiven to the profit generated by each share in the company.                                          
  • Comment on the FIVE (5) ratios of Oslo Limited as compared to the industry average

provided in the additional information.                                                                 

 

INFORMATION

The information given below was extracted from the books of Oslo Limited:

 

 

OSLO LIMITED

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDING 31 DECEMBER 202

1

 

R

Sales

2 145 000

Cost of sales

(1 790 000)

Opening inventory

347 000

Purchases

?

Closing inventory

(447 000)

Gross profit

355 000

Operating expenses

(244 660)

Operating profit

110 340

Interest expense

(20 000)

Profit before tax

90 340

Company tax

(25 295)

 

Profit after tax

65 045

 
   

 

 

 

 

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021

 

R

ASSETS

 

Non-current assets

215 500

Property, plant and equipment

215 500

Current assets

702 500

Inventory

447 000

Debtors/Accounts receivable

219 500

Bank

36 000

 

918 000

EQUITY AND LIABILITIES

 

Equity

414 855

Ordinary Share Capital

287 500

Retained Income

127 355

Non-current liabilities

202 145

Loan

202 145

Current liabilities

301 000

Creditors/Accounts payable

301 000

 

918 000

 

 

3.

 

ADDITIONAL INFORMATION

Dividends for the year ended 31 December 2021 amounted to R39 027. There were 11 500 shares in issue.

The market price per share was R20.50 on 31 December 2021.

Credit terms to debtors are 30 days.

Ratios of Oslo Limited for 2021 as compared to the industry average are as follows:

 

Ratio

Oslo Limited

Industry average

Acid test ratio

0.85:1

1.1:1

Current ratio

2.33:1

2.75:1

Debtors collection period

37.35 days

30 days

Inventory turnover

4.51 times

6 times

Return on equity

15.68%

18.25%

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