QUESTION 1 Study the following case study and financial indicators, and then answer the questions that...

Transcribed Image Text:

QUESTION 1 Study the following case study and financial indicators, and then answer the questions that follow: Case study: Smart Shoes Ltd Smart Shoes Ltd is a well-established, listed South African fashion retail chain store. Smart Shoes Ltd sells a variety of affordable fashionable shoes aimed at the young professional market Smart Shoes Ltd also exports shoes all over the globe and mostly their clients pay for the goods in US Dollars. The company's financial statements for the current year ended 30 June 2023 have just been finalized, a gruelling process involving a large finance function and the group auditors. It has been a challenging year for Smart Shoes Ltd. In March 2020, the country entered lockdown due to the COVID-19 international pandemic and many companies' operations were negativel ed, with some even closing down. Smart Shoes Ltd also closed its doors during the lockdown period and experienced financial struggles as a result. They also couldn't make any exports since their suppliers couldn't supply any shoes as manufacturing had come to a halt. Now that the financial statements had been finalized, the next step was for Mrs. Peter (CFO of Smart Shoes Ltd) to make sense of the information for users of the financial statements, including shareholders. Mostly, Mrs. Peter was looking to make sense of the numbers for herself. She wanted to better understand the company's financial health, particularly its profitability, efficiency, and liquidity, given the significant events that had transpired. Despite those events, she believed that Smart Shoes Ltd was still a financially sound company. However, she needed more analysis to understand if this is still the case. You have recently been employed within the finance function of Smart Shoes Ltd as a strategic financial analyst. Mrs. Peter has heard of your ability to not just read the numbers but interpret them and communicate their message. She has also heard that you recently completed your PGDip at the JBS, where you successfully completed an accounting & financial management module which emphasized the language of accounting. Solvency ratio Current ratio Acid-test ratio Smart Shoes Ltd financial indicators Rate of stock turnover Trading stock deficit as a % of cost of sales Stock holding period Credit terms granted by creditors Debtors' average collection period Return on shareholders' equity: after tax Return on shareholders' equity before tax Earnings per share Dividends per share Change in total sales Gross profit on cost of sales 2023 3.0:1 3.8:1 06:1 3.0 3% 120 days 60 days 28 days 16% 22% 51 cents 12 cents 17% decrease 75% 2022 32:1 3.0:1 0.6:1 4.1 1% 90 days 60 days 35 days 18% 26% 63 cents 5 cents 10% increase 67% Gross profit on sales Net profit after tax on sales Operating expenses on sales Operating profit on sales Return on total capital employed Debt/equity ratio Interest rate on long-term loans Net asset value per share Market price per share Sales 42% 119 37% 15% 26% 0.6:1 14% 310 cents 330 cents R3 154 000 40% 14% 30% 20% 30% 0.3 1 12% 380 cents 390 cents R3 800 000 You are provided with the financial indicators calculated from the financial statements of Smart Shoes Ltd for the past two years ended 30 June 2023. The business uses the perpetual inventory system to value stock and a gross profil markup of 75% on cost. REQUIRED: Explain the answers to each of the following questions and quote the actual ratios / percentages from the above list to support your answers. 1.1 Should the directors be satisfied with the liquidity of the business and the control of stock? (10) 1.2 Should the directors be satisfied with operating activities as reflected on the Income statement? (10) 1.3 Should the shareholders be satisfied with the returns, earnings, dividends and share price? (10) financial health particularly its REQUIRED: Explain the answers to each of the following questions and quote the actual ratios / percentages from the above list to support your answers. 1.1 Should the directors be satisfied with the liquidity of the business and the control of stock? (10) 1.2 Should the directors be satisfied with operating activities as reflected on the Income (10) statement? 1.3 Should the shareholders be satisfied with the returns, earnings, dividends and share price? (10) 1.4 Mrs Peter wants to better understand the company's financial health, particularly its profitability, efficiency, and liquidy, given the significant events that have transpired. Despite those events, she be that Smart Shoes Ltd is still a financially sound. company. After you have done the analysis, comment on Mrs Peter's belief about the (5) soundness of the financial statements. QUESTION 1 Study the following case study and financial indicators, and then answer the questions that follow: Case study: Smart Shoes Ltd Smart Shoes Ltd is a well-established, listed South African fashion retail chain store. Smart Shoes Ltd sells a variety of affordable fashionable shoes aimed at the young professional market Smart Shoes Ltd also exports shoes all over the globe and mostly their clients pay for the goods in US Dollars. The company's financial statements for the current year ended 30 June 2023 have just been finalized, a gruelling process involving a large finance function and the group auditors. It has been a challenging year for Smart Shoes Ltd. In March 2020, the country entered lockdown due to the COVID-19 international pandemic and many companies' operations were negativel ed, with some even closing down. Smart Shoes Ltd also closed its doors during the lockdown period and experienced financial struggles as a result. They also couldn't make any exports since their suppliers couldn't supply any shoes as manufacturing had come to a halt. Now that the financial statements had been finalized, the next step was for Mrs. Peter (CFO of Smart Shoes Ltd) to make sense of the information for users of the financial statements, including shareholders. Mostly, Mrs. Peter was looking to make sense of the numbers for herself. She wanted to better understand the company's financial health, particularly its profitability, efficiency, and liquidity, given the significant events that had transpired. Despite those events, she believed that Smart Shoes Ltd was still a financially sound company. However, she needed more analysis to understand if this is still the case. You have recently been employed within the finance function of Smart Shoes Ltd as a strategic financial analyst. Mrs. Peter has heard of your ability to not just read the numbers but interpret them and communicate their message. She has also heard that you recently completed your PGDip at the JBS, where you successfully completed an accounting & financial management module which emphasized the language of accounting. Solvency ratio Current ratio Acid-test ratio Smart Shoes Ltd financial indicators Rate of stock turnover Trading stock deficit as a % of cost of sales Stock holding period Credit terms granted by creditors Debtors' average collection period Return on shareholders' equity: after tax Return on shareholders' equity before tax Earnings per share Dividends per share Change in total sales Gross profit on cost of sales 2023 3.0:1 3.8:1 06:1 3.0 3% 120 days 60 days 28 days 16% 22% 51 cents 12 cents 17% decrease 75% 2022 32:1 3.0:1 0.6:1 4.1 1% 90 days 60 days 35 days 18% 26% 63 cents 5 cents 10% increase 67% Gross profit on sales Net profit after tax on sales Operating expenses on sales Operating profit on sales Return on total capital employed Debt/equity ratio Interest rate on long-term loans Net asset value per share Market price per share Sales 42% 119 37% 15% 26% 0.6:1 14% 310 cents 330 cents R3 154 000 40% 14% 30% 20% 30% 0.3 1 12% 380 cents 390 cents R3 800 000 You are provided with the financial indicators calculated from the financial statements of Smart Shoes Ltd for the past two years ended 30 June 2023. The business uses the perpetual inventory system to value stock and a gross profil markup of 75% on cost. REQUIRED: Explain the answers to each of the following questions and quote the actual ratios / percentages from the above list to support your answers. 1.1 Should the directors be satisfied with the liquidity of the business and the control of stock? (10) 1.2 Should the directors be satisfied with operating activities as reflected on the Income statement? (10) 1.3 Should the shareholders be satisfied with the returns, earnings, dividends and share price? (10) financial health particularly its REQUIRED: Explain the answers to each of the following questions and quote the actual ratios / percentages from the above list to support your answers. 1.1 Should the directors be satisfied with the liquidity of the business and the control of stock? (10) 1.2 Should the directors be satisfied with operating activities as reflected on the Income (10) statement? 1.3 Should the shareholders be satisfied with the returns, earnings, dividends and share price? (10) 1.4 Mrs Peter wants to better understand the company's financial health, particularly its profitability, efficiency, and liquidy, given the significant events that have transpired. Despite those events, she be that Smart Shoes Ltd is still a financially sound. company. After you have done the analysis, comment on Mrs Peter's belief about the (5) soundness of the financial statements.

Answer rating: 100% (QA)

The provided images contain a case study and financial indicators for Smart Shoes Ltd for the years 2022 and 2023 along with questions that need analysis based on these financial indicators To address ... View the full answer