Question

ood day , this is the whole question.

1. Calculate the net profit on turnover for 2017.

2. calculate the earnings yield and dived yield for 2017 and explain their significance to shareholders.

3. calculate the accounts payable period(in days) noting that newton ltd has after tough negotiations secured a 90 day account will all its creditors.

Calculate the return on equity , would the shareholders be happy with the current return ?

Calculate the inventory turnover ratio and explain the significance of this ration?

statement of financial position : 2017

Non current/fixed R4 200 000

Inventory R 400 000

Receivables R 1 550 000

Cash R 600 000

Total = 6 750 000

EQUITY/LIABILITIES

Share Capital (R2 shres)   R4 200 000 R

Retained Income R 600 000

Long term debt R 250 000

Payables R 1 700 000

total= 6 750 000

Income statement for 2017.

Sales (10% on credit) R10 200 000.

Cost of sales (80% on credit) R4 080 000

Expenses R3 200 000

net income after tax R 2,000,000

Dividends R1 700 000

Retained income R3 000 000

NB: Shares arecurrently trading at R2,80 per share.

Please note there is no number of share, i am assuming that we divide the dividens by R2.80 to get the number of shares.

Answer 1

Financial position of the company at he end of the year 2017

Equity & Liabilities	Amount (R)	Assets	Amount (R)
Share capital (R 2 shares)	4,200,000	Non current/Fixed	4,200,000
Retained earnings	600,000	Inventory	400,000
Long term debt	250,000	Receivables	1,550,000
Payables	1,700,000	Cash	600,000
Total	6,750,000	Total	6,750,000

Income statement for the year 2017:

Particulars	Amount (R)
Sales	10,200,000
Less: Cost of sales	4,080,000
Gross Profit	6,120,000
Less:Expenses	3,200,000
Net Profit	2,920,000
Less: Taxes	920,000
Net income after Taxes	2,000,000

1.Net Profit : Sales - Cost of sales - Expenses

= 10,200,000 - 4,080,000 - 3,200,000

= R 29,20,000

2.Earnings Yield and Dividend Yield:

No.of Shares = Total Share capital/Share value of each share

= 4,200,000/2 = 2,100,000

Dividend per share = 1,700,000/2,100,000 = 0.81

Dividend yield = Dividend per share / market value per share

= 0.81/2.80 = 28.93%

EPS = Net income / No of shares = 2,000,000/2,100,0000.95

Earnings Yield = Earnings per share / Market value per share

= 0.95/2.80 = 34%

3.Accounts payable period :

Payable turnover rate = Total credit purchases/ Avg payables during the year

Total credit purchases = 80% of purchases = 80%*4,080,000 = 3,264,000

Average Payable during the year = (Payables at the beginning + payables at the end) /2

= (1,700,000+0) /2 = 850,000

Payable turnover ratio = 3,264,000/850,000 = 3.84

Accounts payable period = 365/3.84 = 95.05 days

4.Return on equity = Net Income/Avg Shareholders equity

= 2,000,000 / 4,200,000 = 47.62%

5.Inventory Turnover Ratio = Cost of Goods sold / Avg Inventory

= 4,080,000 / 400,000 = 10.20