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CAPRI LIMITED: PERFORMANCE EVALUATION AND PLANNING For many years Capri Limited has delivered on its quality products promise to consumers, ensuring continued access to an
CAPRI LIMITED: PERFORMANCE EVALUATION AND PLANNING
For many years Capri Limited has delivered on its quality products promise to consumers, ensuring continued access to an evergrowing range of established and wellloved brands. Through a spirit of innovation, the company continues to deliver new and exciting products in response to the evolving needs of its customers.
Despite its success the management has noted areas for improvement. This is evident in the following financial statements for the past two years:
CAPRI LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER
R
Cash flows from operating activities
Profit before interest and taxOperating profit
Adjustments to convert to cash from operations
Add: Depreciation
Profit before working capital changes
Working capital changes
Decrease in inventory
Increase in receivables
Increase in payables
Cash generated from operations
Interest income
Dividends paid
Company tax paid
Cash flows from investing activities
Noncurrent assets purchased
Proceeds from sale of vehicles sold at a profit of R
Increase in longterm investments
Disposal of longterm investments disposed at a loss of R
Cash flows from financing activities
Proceeds from issue of ordinary shares
Net increasedecrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
CAPRI LIMITED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER R
ASSETS
Noncurrent assets
Property, plant and equipment cost
Accumulated depreciation
Investments
Current assets
Inventory
Accounts receivable
Bank
EQUITY AND LIABILITIES
Equity
Ordinary Share Capital
Retained Income
Noncurrent liabilities
Loan
Current liabilities
Accounts payable
Dividends payable
CAPRI LIMITED
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER
R
Sales
Cost of sales
Gross profit
Operating expenses
Operating profit
Interest expense
Interest income
Profit before tax
Company tax
Profit after tax
In addition to the above, the following information is available:
Interim dividends paid in amounted to R shares were in issue during The market price per share was R on December
During the management of Capri Limited considered the acquisition a new machine for purchase and installation during the second quarter of with a desired rate of return of The machine will cost R excluding import duties of R and will have a useful life of five years. The machine is expected to increase cash inflows by R per year but cash expenses will increase by R per year. Depreciation is calculated using the straightline method.
At the end of December the company was approached by a group of previously disadvantaged women who had opened a service station on July selling only diesel. They needed assistance in improving the financial performance of the service station. Diesel was sold at R per litre and the variable costs totalled R per litre. The fixed costs were R per month. After six months of opening, the sales achieved was litres and the sales were almost the same each month. To improve the performance, the Capri Limited considered the following proposals:
Proposal
Customers will be allowed to purchase diesel on credit. It is estimated that of the average monthly sales in litres will be to customers who would take advantage of this opportunity. Sales to these customers should increase by as they are expected to buy exclusively from this service station. Sales volumes to customers who do not take advantage of the credit policy are expected to remain unchanged. Additional costs arising from this proposal are expected to be:
Bad debts of of the sales value in respect of customers who use the credit facility.
Fixed administrative costs of R per month.
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