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1. a. Henry Black Ltds Balance Sheet as at 30 June, 2021 and Profit and Loss Statement for the financial year ending 30 June, 2021 (2020-21) contained the following items :
   • Accounts Receivable (and Average Accounts Receivable for 202021), $50,000,000
   • Inventories (and Average Inventories for 202021), $80,000,000

- Other Assets, $270,000,000

• Total Liabilities (Current and Longterm), $150,000,000
• Issued and paidup capital 15,000,000 fully paid ordinary shares $150,000,000
• Other Shareholders Equity Items, being Reserves and Retained Earnings, $100,000,000

- Sales (all credit), $800,000,000

- Cost of sales, $600,000,000

• Earnings before Interest and Taxes (EBIT), $100,000,000
• Interest Expense, $20,000,000 (paid on Total Liabilities above)
• Company Income Tax Rate, 30%
• Interest rate on Total Liabilities, 13.3333%

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Additional information.

All reported items and the resultant profit or loss figures relate to the companys basic operations. The company operates in a competitive industry.

REQUIRED :

Calculate as at 30 June, 2021, the following financial ratios for Henry Black Ltd :

1. Return on sales (also known as profit margin or operating profit margin)
2. Return on assets (ROA)
3. Return on equity (ROE)
4. Interest coverage
5. Debt to equity
6. Inventory turnover
7. Average receivable turnover
8. Average collection period [NOTE: Show all workings.]

b. Comment upon these ratios as to whether they are favourable or not for a prospective investor. Is there any further information you require before you make an investment recommendation?

ANSWER.

2. Based on the data and your answers in Part A. above, calculate:

1. the ROE using the Du Pont method (using Formula 20 on the attached Formulae Sheet); and
2. the ROA (using Formula 22 on the attached Formulae Sheet).
3. Are your answers the same as in Question 3. A. a. iii. and ii. above? Why or why not? (NOTE: Show all workings. Responses to I. and II. above which simply show the same answers as in Question 3.A. a. iii. and ii., without using the Formulae 20 & 22, will receive zero marks.)

ANSWER.

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