Kgomotso Ltd is in the Manufacturing Sector and has Been Expanding - Management Assignment Help

Assignment Task:

Task:

ASSIGNMENT QUESTIONS

QUESTION 1 Esther G. started her business called EG Fun & Games at the beginning of 2019. At the end of her second year in business, Esther wants to compare the 2019 and 2020 results. She provides you with the following financial information: Ratios at the end of December 2019 Gross profit margin 35% Net profit margin 11% Return on capital employed (ROCE) 13% Current ratio 1.4:1 As at 31 December 2020 R Revenue 4 800 000 Cost of sales 2 880 000 Total running costs 1 536 000 Current assets 660 000 Current liabilities 600 000 Total capital employed 2 560 000 Required: a Showing the formulae, calculate the following ratios for the year 2020.

i. Gross profit margin.

ii. Net profit margin.

iii. Return on capital employed (ROCE).

iv. Current ratio (12)

b Tabulate the 2019 and your calculated 2020 ratios. Comment on the changes in the ratios from 2019 to 2020. In your commentary, provide two plausible reasons that could explain the trends observed. (8) c Explain to Esther G. the advantages and disadvantages of using ratios to analyse and interpret performance. (10) BBA1_FIN _ASG_2021 © Regenesys Business School 5

QUESTION 2

Your aunt Nokhona completed her dentistry studies at Sefako Makgatho Health Sciences University not long ago. She has been operating her dental practice for six months now. She knows you are studying financial management and she asks you to help her identify possible items of monetary and nonmonetary information she should include in her monthly report. In assisting her, she needs to know items to include and examples so that she gets a better understanding.

QUESTION 3

Kgomotso Ltd is in the manufacturing sector and has been expanding in the recent past due to a change in its strategic direction. The company has a recently identified project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information: Details Year 1 Year 2 Year 3 Year 4 Year 5 R’000 R’000 R’000 R’000 R’000 Sales 36 750 54 023 61 586 69 770 70 451 Materials 5 885 9 075 11 979 14 714 14 495 Labour 11 770 18 150 23 958 30 746 28 989 Other variable overheads 525 662 752 851 957 Fixed overheads 5 250 5 513 5 788 6 078 6 381 Other operating costs 3 120 3 353 3 600 3 978 4 015 Additional information: • The tax rate is 28% and payable in the year profits are made; • The company is financed by 75% equity and 25% debt with market values of R75m and R25m respectively. The company has an equity beta of 1,2. The rate on treasury bills issued by the South African Reserve Bank is 5% and considered to have no risk. The market risk premium is 7,5%. The company’s after-tax cost of debt is 6%; • Profits are similar to cash flows for the purposes of this project evaluation; and • All receipts and payments arise at the end of the year to which they relate except for the project’s initial outlay of R30m which is paid at the beginning of the project (ie immediately).

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