1
MAC 3702
ASSIGNMENT 2 – SEMESTER 1 – 2025
QUESTION 1
a)
i. NET PROFIT MARGIN
Net profit
Net profit margin =
Sales
R18 200
Net profit margin =
R461 000
Net profit margin = 3.95%
Net profit R
Profit before tax 26 174
Once-off item (358)
25 816
Tax at effective rate of 29.5% (7 616)
18 200
To improve ratio:
• Gain market share
• Reduce gearing to reduce interest cost
• Manage operating costs
ii. RETURN ON ASSETS
EBIT
ROA =
TOTAL ASSETS
R35 270
ROA =
R352 040
ROA = 10.02%
EBIT R
Profit before tax 25 816
Finance costs 9 454
35 270
, 2
Total Assets R
Capital and reserves 121 885
Non-current liabilities 102 875
Current liabilities 127 280
352 040
In order to improve ROA:
• Profitability must be improved
• Better management of current assets
iii. EFFECTIVE INTEREST RATE
Total interest
Effective interest rate =
Total interest bearing debt
R9 454
Effective interest rate =
R118 022
Effective interest rate = 8.01%
Total interest - bearing debt R
Long-term loan 100 000
Bank overdraft 18 022
118 022
To improve this ratio:
• Reduce gearing levels.
iv. DEBT EQUITY RATIO
Debt equity ratio = Long − term interest bearing debt: Total ordinary equity
Debt equity ratio = R100 000 ∶ R73 760
Debt equity ratio = 1.36 ∶ 1
Total ordinary equity = R121 885 − R48 125(prefs) = R73 760
This ratio can be improved by reducing levels of debt and funding future projects in line with the target
debt equity ratio.
MAC 3702
ASSIGNMENT 2 – SEMESTER 1 – 2025
QUESTION 1
a)
i. NET PROFIT MARGIN
Net profit
Net profit margin =
Sales
R18 200
Net profit margin =
R461 000
Net profit margin = 3.95%
Net profit R
Profit before tax 26 174
Once-off item (358)
25 816
Tax at effective rate of 29.5% (7 616)
18 200
To improve ratio:
• Gain market share
• Reduce gearing to reduce interest cost
• Manage operating costs
ii. RETURN ON ASSETS
EBIT
ROA =
TOTAL ASSETS
R35 270
ROA =
R352 040
ROA = 10.02%
EBIT R
Profit before tax 25 816
Finance costs 9 454
35 270
, 2
Total Assets R
Capital and reserves 121 885
Non-current liabilities 102 875
Current liabilities 127 280
352 040
In order to improve ROA:
• Profitability must be improved
• Better management of current assets
iii. EFFECTIVE INTEREST RATE
Total interest
Effective interest rate =
Total interest bearing debt
R9 454
Effective interest rate =
R118 022
Effective interest rate = 8.01%
Total interest - bearing debt R
Long-term loan 100 000
Bank overdraft 18 022
118 022
To improve this ratio:
• Reduce gearing levels.
iv. DEBT EQUITY RATIO
Debt equity ratio = Long − term interest bearing debt: Total ordinary equity
Debt equity ratio = R100 000 ∶ R73 760
Debt equity ratio = 1.36 ∶ 1
Total ordinary equity = R121 885 − R48 125(prefs) = R73 760
This ratio can be improved by reducing levels of debt and funding future projects in line with the target
debt equity ratio.
