QUESTION 1 40 MARKS PCA Ltd declared bankruptcy in June 2020 soon after publishing the financial statements for the year ended December 2019. PCA Ltd's financial information for 2016 through 2018 are presented below. PCA Ltd's Income statement for the year ended 31 December 2017 2018 (R' Millions) (R' Millions) Revenue 1 950 2 114 Cost of sales -1 413 -1 413 Gross profit 537 701 Operating expenses -452 -471 Operating profit 230 Interest Expense -63 -81 Profit before tax 22 149 Income tax -8 -51 Net profit 14 98 85 PCA Balance Sheet as at 31 December 2016 2017 2018 Assets Current assets Cash and cash equivalent Accounts receivable Inventories Prepaid expense and other Total current assets Non-current assets PPE Other assets Total non-current assets 12 297 431 45 10 199 472 27 82 315 735 66 785 708 1 198 130 736 224 851 1 075 326 1 239 1 565 866 Total assets 1651 1 783 2 763 21 289 Liabilities and Equity Liabilities Current liabilities Overdraft Accounts Payables Accrued liabilities Taxes payable Total current liabilities Non-current liabilities Loans 30 504 128 145 600 111 122 17 24 432 679 880 354 412 1 188 12 29 14 368 800 424 1 217 1 103 2097 Other long term liabilities Total non-current liabilities Total Liabilities Equity Share capital Redeemable preferable shares Total equity 750 578 563 101 102 680 103 666 851 Total liabilities & Equity 1 651 1 783 2 763 REQUIRED Marks (a) Discuss whether information in the above financial statements provides any warnings about the company's eventual demise. Your answer should be based on an analysis of PCA's 2017 - 2018 activity, solvency, liquidity and profitability ratios. 24 (b) Briefly describe any anomalies or peculiarities in PCA's ratios or financial data 10 6 (c) Breakdown PCA's ROE for 2017 - 2018 and comment in light of the current situation faced by this company. TOTAL 40