3. Questions Bethany Furns is a fictional business in Pietermaritzburg that sells custom-made furniture crafted from commercially farmed yellowwood. The businesss financial health was not at risk during Year 1 of operation. However, the business encountered supply problems that negatively impacted its finances in Year 2. As a result of a recent wildfire that devastated acres of yellowwood forest from which the business sources its wood, yellowwood has become exceedingly difficult to obtain and its price has skyrocketed. Assess the cash flow and working capital management of Bethany Furns. For each question, refer to Tables 13, which include the cash flow statement, income statement, and balance sheet. Table 1: Cash flow statement for Years 1 and 2 (in R000 i.e. R1,000 represents R1,000,000). Bethany Furnss cash flow statement Cash and equivalents at end of year Year 1 Year 2 Cash from operating activities R8,532 R11,572 EBIT R11,678 R13,507 Non-cash items Depreciation R1,500 R1,500 Working capital adjustments Increase/decrease in inventory R1,150 R2,380 Increase/decrease in accounts receivable R2,234 R254 Increase/decrease in accounts payable R413 R2,334 Tax paid R3,149 R3,643 Cash from investing activities R10,000 R0 Fixed asset purchases R10,000 R0 Cash from financing activities R11,957 R42 Proceeds of loan R2,000 R0 Interest paid R17 R16 Repayment of loan capital R26 R26 Proceeds from capital investment R10,000 Net increase in cash and equivalents R10,489 R11,530 Cash and equivalents at beginning of the year R0 R10,489 Cash and equivalents at end of the year R10,489 R22,019 Table 2: Income statement for Years 1 and 2 (in R000 i.e. R1,000 represents R1,000,000). Bethany Furnss income statement Year 1 Year 2 Revenue R39,654 R42,360 Cost of goods sold R23,942 R24,683 Gross profit R15,712 R17,677 Operating expenses R4,034 R2,670 Salaries R1,334 R1,470 Rent and electricity Depreciation R1,200 R1,500 R1,200 R1,500 Earnings before interest and tax (EBIT) R11,678 R13,507 Interest expense R17 R16 Profit/(loss) before tax R11,661 R13,491 Tax paid (27%) R3,149 R3,643 Profit/(loss) after tax R8,512 R9,848 Table 3: Balance sheet for Years 1 and 2 (in R000 i.e. R1,000 represents R1,000,000). Bethany Furnss balance sheet Year 1 Year 2 Total assets R28,073 R40,229 Non-current assets R8,500 R7,000 PPE R10,000 R10,000 Accumulated depreciation R1,500 R3,000 Current assets R19,573 R33,229 Inventory R3,850 R6,230 Trade receivables R5,234 R4,980 Cash and equivalents R10,489 R22,019 Total liabilities and equity R28,073 R40,229 Equity R21,512 R31,360 Share capital R13,000 R13,000 Retained earnings R8,512 R18,360 Current liabilities R4,587 R6,921 Trade and other payables R4,587 R6,921 Non-current liabilities R1,974 R1,948 Long-term loan R1,974 R1,948 Year 1 opening balances: Inventory R5,000 Receivables R3,000 Payables R5,000 Cash R0.00 Question 1 Assess Bethany Furnss financial health as it relates to its cash flow. Calculate and interpret the operating cash flow ratio, cash flow coverage ratio, years to cover ratio, inventory days, receivable days, payable days, and cash conversion cycle (CCC). Does the business have enough cash flow to meet its short-term obligations? Why do you think so? (Max. 450 words) Start writing here: Question 2 Consider Bethany Furnss CCC. If the company wanted to reduce its CCC, what would you suggest it does? Why do you suggest this? (Max. 250 words) Start writing here