Introduction to Business Management: Assignment 1

Multiple Choice

SECTION A QUESTION 1

1.1 a

1.2 d

1.3 d

1.4 d

1.5 b

1.6 d

1.7 b

1.8 d

1.9 a

1.10 b

SECTION B QUESTION 2

2.1 Even though government organisations are run by the state, they still provide goods and services to
the citizens of their countries. These goods and services most often fulfil very important needs such as
clean water, waste disposal and medical care to those members of society that are unable to afford
private medical aid. Often such goods and services are exchanged for rates and taxes that are used to
provide these goods and services. It is important to distinguish that most government organisations do
not strive to make a profit out of the fulfilment of society’s needs, unlike private enterprises where
profit generation is the main objective.

2.2 There are many examples of such situations in Namibia. These include: Private medical aid schemes
that provide an alternative to public health services offered by the government (e.g. NMC) - Waste
removal companies (such as Rent a Drum) that collect waste that is not removed by governments
department - Solar panel companies that provide an alternative to electricity provided by government.
(e.g. Solar King CC)
Question 3

3.1 BEP = FC/ SP – VC

18000/160 – (48+52) =

18000/60 = 300 units

3.2 BEP = FC/ Contribution ratio

= 18000/ 0.375

= N$ 48000 (in dollars)

3.3 (a) Gross profit margin

Sales – Cost of sales = Gross Profit/ Sales *100
4 600 000 – 3 000 000 = 1 600 000/4 600 000 *100 = 34.78%
The gross profit percentage shows the percentage of income that is left from sales to meet other
operating expenses after deducting the cost of sales.

(b) Net profit margin

Gross Profit – Expenses = Net Profit/ Sales *100
1 600 000 – 950 000 = 650 000/4 600 000 *100 = 14.13%
This ratio indicates management’s ability to operate an entity successfully.

(c) Debt ratio

Debt/ Total Assets *100/1=
2 360 000/ (2 360 000 + 9 410 000) =
= 236/1177*100
= 20.05%
This ratio indicates the percentage of a company assets that are provided via debt a ratio a debt ratio
of 40% and lower indicate a good debt ratio.

(d) Current Ratio

Current Assets/ Current Liabilities
= 2 110 000/ 1 450 000 =
=211: 145
=1,46: 1
The current ratio is below the acceptable norm of 2:1. The company may experience problems in
meeting its short term obligations. However, a ratio of 1,46:1 shows that the entity is able to cover its
current liabilities using its current assets.

(e) Acid test ratio

Current Assets – Stock / Current Liabilities

= 2 110 000 – 1 400 000 / 1 450 000

= 710 000/ 1 450 000

= 71: 145

=1: 2,04

The Acid test ratio is below the acceptable standard of 1:1. This indicates that the entity relies on the
sale of inventory to raise money to meet its short term obligations. The entity might be experiencing
liquidity problems and may fail to honour its obligations as they fall due.