Cricket Twenty Company Ltd, (the company) is a retailer of sports goods and sports equipment. The company

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Cricket Twenty Company Ltd, (the company) is a retailer of sports goods and sports equipment. The company was incorporated in Carland in 1998. It has an issued share capital of 100 ordinary shares of which Henri Gale has 76 and Dane Brave has 24. The company’s Board comprises three directors, Gale, Brave, and Ravi Ram. The company has presented its financial statements at each Annual General Meeting to date. These financial statements were all approved by the shareholders, who were satisfied with the company’s performance over the last decade. However, to date, there has been very little in-depth financial analysis of the company’s performance.

The Board has noted that during the past two years, the company has been impacted severely by developments in the business environment. The Board is therefore of the view that it has now become critical for the performance of the company to be more closely monitored and analyzed. Also, Brave is thinking of exiting from the company to devote more time to his musical ambition. Two months ago, he asked Gale whether he would be interested in purchasing his shares. However, Gale responded that he was himself thinking of retirement but not in the immediate future. Accordingly, he was not interested in purchasing any of Brave’s shares. This was especially so as he already had control of the company through his holding of at least 75 shares which was the number that is required to pass a special resolution. However, he was not averse to the idea of selling any shares he had in excess of this number. Last month, Brave learned that Jason Chase, a colleague of both Gale and Brave, would be interested in purchasing all of Brave’s shares once they could agree on a price. Brave duly informed the Board of his intention to dispose of his shares and of Chase’s interest in acquiring them. This step was necessary since the company’s Articles of Incorporation requires that a shareholder who wishes to dispose of his shares must first offer them to the other shareholder(s) at a price to be approved by the Board. Should no current shareholder be interested in acquiring the shares offered, the shares could then be sold but only with the approval of the Board. You are a student in LOMAT at Cariland University.

The Board has engaged you to report to it on the company’s financial performance in particular, and to suggest a value for Brave’s shares. The Board has provided you with the company’s financial statements for the last two years as well as some sports goods and equipment industry data. These are set out in Appendix I and Appendix II respectively. You intend to use in your analysis, the categories of performance indicators applied by the industry and the end-of-year figures in the statements of the financial position of the company. You will also assume a 365-day year. You will also apply two methods of share valuation to establish a minimum and maximum share value. These are (a) valuing all 100 shares at an amount equal to 10 times the company’s net income before tax in 2021, and (b) valuing each of Brave’s shares using a Price Earnings multiple of 12. REQUIRED Write a report to the Board and include the following:

(i) an analysis and evaluation of the financial performance of the company over the past two years with any recommendations for improvement;

(ii) a comparison of the company’s performance in 2021 with that of the industry;

(iii) any assumptions you have made and any limitations you have identified in your analyses above;

(iv) the range of estimated values you would place on the value of each of Brave’s shares together with any reservations you may have as to your estimates; and

(v) the factors you would consider when placing a value on two (2) of Gale’s shares.

APPENDIX I Cricket Twenty Company Ltd Statement of Income for the year ended December 31 2020 2021 $ $

Turnover 3,500,035 2,910,180

Cost of Sales 1,783,290 1,690,214

Gross Profit 1,716,745 1,219,966

Administrative Expenses 412,980 384,250

Distribution Expenses 218,126 196,204

Net Income before Tax 1,067,171 623,266

Taxation 72,275 24,254

Net Income after Tax 994,896 599,012

Statement of Financial Position as at December 31. 2020 2021 $ $

Current Assets: Cash in Hand and at Bank 282,110 57,842

Accounts Receivable 182, 028 212, 865

Inventory 546,902 724,960 1,011,040 995,667

Non Current Assets: Property, Plant and Equipment 618,590 602,750

Total Assets 1,629,630 1,598,417

Current Liabilities: Accruals 56,675 64,382

Accounts Payable 104,678 198,056

Current Portion of Long-Term Loan 50,000 50,000 211,353 312,438

Non-Current Liabilities: Bank Loan 590,000 540,000

Total Liabilities 801,353 852,438 Equity: Ordinary Share Capital 600,000 600,000

Retained Earnings 228,277 145,979 828,277 745,979

Total Liabilities and Equity 1,629,630 1,598,417

STATEMENT OF CHANGES IN EQUITY Ordinary Retained Total Share Capital Earnings $ $ $ Balance at 1.

1. 2021 600, 000 228, 277 828, 277

Net Income After Tax 599, 012 599, 012

Dividends (681, 310) (681, 310)

Balance 600, 000 145, 979 745, 979

APPENDIX II INDUSTRY DATA 2021

Gross Profit Margin 50% Net Profit Margin 32% Return on Capital Employed 45% Return on Equity 60% Current Ratio 2.6 times Acid Test Ratio 1.2 times Accounts Receivable Collection Days 20 days Total Assets Turnover $3.10 Inventory Turnover 80 days Payables Turnover 35 days Operating Cycle 100 days Gearing 30% Interest Cover 10 times Average Price Earnings Multiple 15.