Module: Accounting and Financial Management

Task: Individual Assignment

Total Marks $=56$

Answer all questions

Question $1[28]$

Read the given financial statement and answer the question that follow.

Statement of Financial Performance of AfroTech for the year ended $30$ December

Revenues:

Net Sales $5,000,000$

Cost of Goods Sold

Beginning Inventory $1,000,000$

Purchases $2,500,000$

Ending Inventory $(1,200,000)$

Total COGS $2,300,000$

Gross Profit $2,700,000$

Operating Expenses:

Salaries and Wages $500,000$

Rent $150,000$

Utilities $50,000$

Depreciation $100,000$

Advertising $70,000$

Total Operating Expenses $870,000$

Operating Income $1,830,000$

Other Income and Expenses:

Interest Income $10,000$

Interest Expense $(40,000)$

Total Other Income and Expenses $(30,000)$

Income Before Taxes $1,800,000$

Income Tax Expense $(30\%)(540,000)$

Net Income $1,260,000$

Statement of Financial Position of AfroTech Ventures for the year ended $31$ December $2023$

$($R$)$

Assets:

Current Assets:

Cash $600,000$

Accounts Receivable $700,000$

Inventory $1,200,000$

Prepaid Expenses $50,000$

Total Current Assets $2,550,000$

Non$-$Current Assets:

Property, Plant, and Equipment $1,800,000$

Less: Accumulated Depreciation $(300,000)$

Net Property, Plant, and Equipment $1,500,000$

Intangible Assets $($Goodwill$)200,000$

Total Non$-$Current Assets $1,700,000$

Total Assets $4,250,000$

Liabilities and Equity:

Current Liabilities:

Accounts Payable $400,000$

Short$-$Term Loans $300,000$

Accrued Expenses $100,000$

Total Current Liabilities $800,000$

Non$-$Current Liabilities:

Long$-$Term Debt $1,000,000$

Total Non$-$Current Liabilities $1,000,000$

Total Liabilities $1,800,000$

Equity

Common Stock $1,000,000$

Retained Earnings $1,450,000$

Total Equity $2,450,000$

Total Liabilities and Equity $4,250,000$

Cash Flow Statement AfroTech Ventures for the Year Ended $31$ December $2023$

Amount $($R$)$

Cash Flows from Operating Activities:

Net Income $1,260,000$

Adjustments for:

Depreciation $100,000$

Changes in Working Capital:

Increase in Accounts Receivable $(100,000)$

Increase in Inventory $(200,000)$

Increase in Prepaid Expenses $(10,000)$

Increase in Accounts Payable $50,000$

Increase in Accrued Expenses $20,000$

Net Cash Provided by Operating Activities $1,120,000$

Cash Flows from Investing Activities:

Purchase of Property, Plant, and Equipment $(400,000)$

Net Cash used in investing activities $(400,000)$

Cash flows from financing activities:

Proceeds from Long$-$Term Debt $500,000$

Repayment of Short$-$Term Loans $(200,000)$

Interest Paid $(40,000)$

Net cash provided by financing activities $260,000$

Net increase in cash $980,000$

Cash at the beginning of the year $380,000$

Cash at the end of the year $1,360,000$

$1\mathrm{.}1\mathrm{.}1$ Critically evaluate the effectiveness of traditional financial statements in providing a comprehensive view of a company's performance. What additional information might be necessary for a more complete analysis? $[5]$

$1\mathrm{.}1\mathrm{.}2$ Based on the given financial information, can AfroTech Ventures meet its short$$and long$-$term obligations? What conclusions can you draw about the company's financial leverage? $[8]$

$1\mathrm{.}1\mathrm{.}3$ Using a net profit margin, evaluate AfroTech Ventures' profitability based on the net income and total revenues. $[3]$

$1\mathrm{.}1\mathrm{.}4$ Explain the significance of net cash provided by operating activities. Why is this figure crucial for assessing AfroTech Ventures' financial health? $[2]$

$1\mathrm{.}1\mathrm{.}5$ If a company has a high debt$-$to$-$equity ratio compared to its industry peers, what are the potential risks and benefits of this financial structure? How should the company's management address these risks? $[5]$

$1\mathrm{.}1\mathrm{.}6$ You are a financial analyst evaluating two companies in the same industry. Company A has a higher current ratio but a lower quick ratio than Company B$.$ Discuss the potential reasons for this difference and its implications for each company's liquidity. $[5]$