Issue 1: The company since July 2022 to early 2023 has been losing money due to the
Question:
Issue 1:
The company since July 2022 to early 2023 has been losing money due to the volatility in the financial markets, raising interest rates and lack of consumer demand for the company's products by hospitals and medical centres.
Samuel and Carolyn expect demand to pick up in early 2024 but are concerned about how the company can survive until then.
The draft financial statements for Metrix prepared by Wei Shun show that this would result in the company for the year ended 31 March 2023 making a trading loss of $9,363,861.
Projected results for 31 March 2024 show the company making a trading profit of $850,000
Samuel has explained that staff costs, operating expenses, and the cost of funding the new building in Woodlands were the main reason for the trading loss of $9,363,861.
The three significant investors hold 100% of the company's issued Preference shares and 12% of the ordinary shares. The three companies are looking for a dividend.
DRAFT FINANCIAL STATEMENTS:
Summary of Balance Sheet as at 31 March 2023:
ASSETS:
Current Assets:
Cash, Receivables and Inventory $5,365,000
Loan to Samuel $8,000,000
Fixed Assets:
Building, Plant and equipment (net) $12,897,647
Intangible Assets:
Intellectual property being the value of the
Medical equipment $8,256,000
Total assets: $34,518,647
LIABILITIES:
Current:
Trade creditors, IRAS, $6,892,758
Non-Current:
Loan from Citibank (for building) $8,500,000
Loan from Gary $1,200,000
Total liabilities $16,592,758
Net Assets: $17,925,889
REPRESENTED BY:
Shareholders' funds being:
Ordinary shares $4,500,000
A class Preference shares $19,500,000
Accumulated profits as at 1
April 2022 $3,289,750
Less current year loss for
31 March 2023 ($9,363,861)
Net Funds: $17,925,889
The ordinary shares are valued at $3.75 each which is a 40% decrease from the 1 January 2023.
The preference shares were issued at a price of $10.50 each. The current value is $7.50 as at 1 January 2023.
There has been pressure from the three significant investors on Metrix to pay a dividend.
The directors are mindful of the need to retain funds for working capital and are reluctant to pay a dividend based on the results for 31 March 2023.
However, Pak Loo disagrees and insists the company pay a dividend as assets exceed liabilities. Nitesh and Gary also would like a dividend and support Pak Loo's view.
Issues they seek advice on:
- Looking at the balance sheet above is there a profit from which the directors can pay a dividend to the shareholders? The company had a history up to 2020 of paying dividends. The rate of the dividend was approximately 15% of the retained earnings of the company at the end of the year.
- Can the shareholders or Pak Loo, Gary or Nitesh force the company to pay a dividend? What does the constitution say?
- Is Pak Loo supposed to look after the significant shareholder's or the interests of the company?
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr