LAO 2021 Final

DEPARTMENT OF ACCOUNTANCY
FINANCIAL MANAGEMENT 3B
LAST ASSESSMENT OPPORTUNITY 1 (Part A)
11 NOVEMBER 2021
TIME: 75 Minutes MARKS: 50
ASSESSORS: Mr S Modiba
Ms M Hlobo
MODERATORS: Ms W Mabuto (Internal)

Ms M Mokabane (External)
INSTRUCTIONS TO CANDIDATES
1. This paper is PART A of a four-part assessment.
2. This paper consists of 5 pages.
3. The duration of the paper is 75 minutes.
4. Show all calculations clearly.
5. This assessment must be attempted as an individual effort.
4. Submission of this assessment will be regarded as an undertaking by the student that
he/she completed this assessment without assistance from another person.
5. The university regulations will apply should a transgression in this regard be
suspected/discovered.
5. Where applicable, round all amounts to two decimal places.
Question Marks Time allocated (minutes)

1 25 37.5
2 25 37.5
Total 50 75
FINANCIAL MANAGEMENT 3B-LAST ASSESSMENT OPPORTUNITY(LAO) 2
QUESTION 1 (25 Marks)
Rosmoss (Pty) Ltd, a South African company with a target capital structure of 2:1
(debt/equity), manufactures turbines and propellers. The company was founded three years
ago by Shona Mapisane, a flamboyant businesswoman from Limpopo. Shona is interested in
selling the business as she is currently experiencing financial problems. She has requested
you to perform a discounted free cash flow valuation of Rosmoss on 1 January 2022. She
provided you with the following information relating to the financial year end 31 December
2021:
• Profit after tax amounted to R8 800 000, which includes depreciation on assets of
R2 000 000.
• The expectation is that Rosmoss will experience nominal growth over the next few years
as follows:
2022: 4%
2023: -6%
2024: 8%
• After 2024 it is expected that the company will maintain a real growth rate of 4% into
perpetuity.
• The company has a long-term loan of R7 000 000, on which it paid R600 000 in interest
during the year. A similar loan can currently be obtained at an interest rate of 7.5% per
annum.
• Included in the company’s property, plant and equipment is a holiday house situated in
Durban. Shona and her family currently occupy the house at no cost. Shona has indicated
that she will be keeping the house for herself for personal use. The house generated rental
income of R100 000 and expenses of R40 000 for the year ended 2021 (amount are
included in profit after tax).
• Net working capital for the year ended 31 December 2020 is R570 000. Financial
statements for 31 December 2021 reflect a decrease in net working capital of R60 000.
Current assets have always been more than current liabilities.
• It is expected that non-current assets will be replaced at an annual cost equal to inflation-
adjusted depreciation.
After conducting some research, you determine that inflation is expected to remain stable at
5% for the foreseeable future. You estimate that equity providers require a return of 30%
from a business like Rosmoss.
REQUIRED:
1.1 Prepare a report in which you advise Shona on the value of her shareholding
in Rosmoss (Pty) Ltd on 1 January 2022. (25)
QUESTION 2 (25 Marks)
SWENKA Ltd is a South African listed fashion retail chain that also has stores in other SADEC
countries. Mr Swag has been the CEO for the last six years and after extensive research, the
company now wants to expand SWENKA to countries north of Africa by the mid-2022
financial year.
You are an investment analyst at 3Li Capital, a well-known asset management firm. Your
manager sees SWENKA as a lucrative investment opportunity and has provided you with the
following set of financial statements and additional information to analyse:
Statement of Financial Position

of SWENKA Ltd as at 31 June 2021
2021 2020
R’000 R’000
ASSETS
Non-current assets 209,100 197,850
Current assets 1,046,550 993,150

Inventories 130,050 123,900
Trade receivables 791,700 752,700
Cash and cash equivalents 124,800 116,550
TOTAL ASSETS 1,255,650 1,191,000
EQUITY AND LIABILITIES

Equity attributable to equity holders 669,000 603,450
Non-current liabilities 393,600 393,150
Current liabilities 193,050 194,400

Trade payables 95,250 92,250
Accrued expenses 97,800 102,150
TOTAL LIABILITIES 586,650 587,550
TOTAL EQUITY AND LIABILITIES 1,255,650 1,191,000

Extract of the Statement of Comprehensive Income

of SWENKA Ltd for the year ended 31 June 2021
2021 2020
R’000 R’000
Revenue 1,177,050 1,129,800
Cost of sales (529,800) (511,350)
Gross profit 647,250 618,450
Operating expenses (472,350) (445,500)
Other expenses (depreciation) (28,500) (24,300)
Operating profit 146,400 148,650
Finance costs (163,500) (13,500)
Profit before tax 131,400 135,150
Income tax expense (32,250) (33,788)
Profit for the year 95,150 101,363
EPS R2.11 R2.16
Additional information:
• Revenue relates to credit sales only
• Cost of sales is assumed to represent annual purchases
• SWENKA had 31.3 million shares in issue for both 2020 and 2021
You have obtained the following data from the JSE at SWENKA year-end:
• The closing share price for 2015: R3.97
• The closing share price for 2014: R3.05
The 2020 Ratios have been calculated for you as follows:
Ratio 2020
Current ratio 5.11:1
Quick ratio 4.47:1
Average collection period 243 days
Average payment period 66 days
Debt ratio 49.33%
Gross profit margin 54.74%
Operating profit margin 13.16%
Net profit margin 8.87%
Earnings per share R2.16
ROA 8.51%
ROE 16.80%
P/E 1.41
REQUIRED:
Prepare a report to your manager advising him on the following:
2.1 Whether SWENKA is indeed a lucrative investment opportunity. (20)
Tips:
• Assume that balances are equivalent to the averages for the year.
• Use the given 2020 ratios as a guide as to which ratios must be
calculated.
• Use the 2020 ratios provided as well as your calculated 2021 ratios
to complete the report. The report should consist of the following
sections:
a. Liquidity ratios (5)

b. Asset Management/ Turnover ratios (3)
c. Debt/Leverage/Gearing ratios (2)
d. Profitability ratios (5)
e. Market ratios (3)
f. Recommendation and conclusion (2)
• You may assume 365 days in a given year and you are not required
to use averages.
• Show ALL your workings.
• Please round ALL your answers to two decimal places where required.
2.2 The inherent limitations of analysis of financial information that he

should bear in mind when interpreting your financial analysis report. (5)
--o0o---END--o0o---

LAO 2021 Final

Uploaded by

Copyright:

Available Formats

LAO 2021 Final

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

LAO 2021 Final

Uploaded by

Copyright:

Available Formats

DEPARTMENT OF ACCOUNTANCY

LAST ASSESSMENT OPPORTUNITY 1 (Part A)

TIME: 75 Minutes MARKS: 50

MODERATORS: Ms W Mabuto (Internal)

Question Marks Time allocated (minutes)

QUESTION 1 (25 Marks)

QUESTION 2 (25 Marks)

Statement of Financial Position

Current assets 1,046,550 993,150

EQUITY AND LIABILITIES

Non-current liabilities 393,600 393,150

Current liabilities 193,050 194,400

TOTAL EQUITY AND LIABILITIES 1,255,650 1,191,000

Extract of the Statement of Comprehensive Income

The 2020 Ratios have been calculated for you as follows:

Prepare a report to your manager advising him on the following:

2.1 Whether SWENKA is indeed a lucrative investment opportunity. (20)

a. Liquidity ratios (5)

2.2 The inherent limitations of analysis of financial information that he

You might also like