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 ever$-$growing range of established and well$-$loved 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 $31$ DECEMBER $2021$

R

Cash flows from operating activities $756000$

Profit before interest and tax$/$Operating profit

$900000$

Adjustments to convert to cash from operations

$?$

Add: Depreciation

$252000$

$?$

$?$

$?$

$?$

Profit before working capital changes

$?$

Working capital changes

$194400$

Decrease in inventory

$288000$

Increase in receivables

$(396000)$

Increase in payables

$302400$

Cash generated from operations

$1346400$

Interest income

$72000$

Dividends paid

$?$

Company tax paid

$(388800)$

Cash flows from investing activities

$(1368000)$

Non$-$current assets purchased

$(1476000)$

Proceeds from sale of vehicles $($sold at a profit of R$150000)$

$540000$

Increase in long$-$term investments

$(612000)$

Disposal of long$-$term investments $($disposed at a loss of R$150000)$

$180000$

Cash flows from financing activities

$720000$

Proceeds from issue of ordinary shares

$720000$

Net increase$/$decrease in cash and cash equivalents

$?$

Cash and cash equivalents at beginning of year

$792000$

Cash and cash equivalents at end of year

$?$

CAPRI LIMITED STATEMENT OF FINANCIAL POSITION AS AT $31$ DECEMBER $2022$ R

ASSETS

Non$-$current assets

$5040000$

Property, plant and equipment $($cost$)$

$4980000$

Accumulated depreciation

$(1260000)$

Investments

$1320000$

Current assets

$6120000$

Inventory

$2100000$

Accounts receivable

$2460000$

Bank

$1560000$

$11160000$

EQUITY AND LIABILITIES

Equity

$7500000$

Ordinary Share Capital

$5118000$

Retained Income

$2382000$

Non$-$current liabilities

$2700000$

Loan

$2700000$

Current liabilities

$960000$

Accounts payable

$576000$

Dividends payable

$384000$

$11160000$

CAPRI LIMITED

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED $31$ DECEMBER $2022$

R

Sales

$8400000$

Cost of sales

$(5304000)$

Gross profit

$3096000$

Operating expenses

$(1596000)$

Operating profit

$1500000$

Interest expense

$(324000)$

Interest income

$120000$

Profit before tax

$1296000$

Company tax

$(390000)$

Profit after tax

$906000$

In addition to the above, the following information is available:

Interim dividends paid in $2022$ amounted to R$456000.511800$ shares were in issue during $2022.$ The market price per share was R$17\mathrm{.}25$ on $31$ December $2022.$

During $2022$ the management of Capri Limited considered the acquisition a new machine for purchase and installation during the second quarter of $2024$ with a desired rate of return of $15\%.$ The machine will cost R$6000000$ excluding import duties of R$250000$ and will have a useful life of five years. The machine is expected to increase cash inflows by R$2000000$ per year but cash expenses will increase by R$300000$ per year. Depreciation is calculated using the straight$-$line method.

At the end of December $2022$ the company was approached by a group of previously disadvantaged women who had opened a service station on $01$ July $2022,$ selling only diesel. They needed assistance in improving the financial performance of the service station. Diesel was sold at R$16$ per litre and the variable costs totalled R$14$ per litre. The fixed costs were R$135000$ per month. After six months of opening, the sales achieved was $540000$ litres and the sales were almost the same each month. To improve the performance, the Capri Limited considered the following proposals:

Proposal $1$

Customers will be allowed to purchase diesel on credit. It is estimated that $60\%$ 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 $25\%$ 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 $1\%$ of the sales value in respect of customers who use the credit facility.

$$ Fixed administrative costs of R$7500$ per month.