Carmella limited and Luciana limited operate in the same industry and have equal market shares. Their operating and financial characteristics differ as Carmella limited has adopted newer manufacturing practices: It operates highly automated plants and maintains tight control of inventories consistent with just-in-time inventory techniques. To achieve these inventory levels, close coordination with suppliers and customers is needed; collections and payments are relatively prompt. Financial data for 2018 for Carmella and Luciana are as follows: Carmella Limited Luciana limited Gross plant assets Current ratio Quick ratio Return on equity Cash from operations/ Current liabilities 5.275 :1 Decline in receivables Decline in inventory Decline in accounts payable Cash from operations Cash from financing: decline in short-term debt (sh1,000,000) Cash for investment sh. 65,000,000 3.592 :1 3.192 :1 16.7% 0.942:1 (sh 4,500,000) (sh.6,000,000) (sh.5,000,000) sh 28,250,000 Sh. 175,000,000 9.475 1 8.875 :1 13.0% (sh.3,000,000) sh 52,750,000 (sh.5,000,000) Common-size statements for Carmella ltd and Luciana ltd, prepared by your assistant, follow but they are unidentified as to which company they belong to. Sales in 2018 for both companies were one-sixth less than in 2017 Common-size statements Company? 2017 100% 63.89% Company? 2018 100% 66.67% 2017 100% 58.33% 2018 100% 66.67% Sales COGS Sales and administrative Expenses Interest 19.44% 1.67% 3.75% 88.75% 11.25% 20.00% 2.00% 2.83% 91.50% 8.50% 17.78% 3.89% 5.00% 85.00% 15.00% 20.00% 4.67% 21 7% 93.50% 6.50% axes Sub-total Net income Finally, your assistant also computed the ratios shown for 2018 (again unidentified as to company). In addition, the ratios are mixed up: some in column 1 belong to Carmella limited and some to Luciana limited (similarly, the ratios in column 2 are a mixture of Carmella limited and Luciana limited) Inventory turnover Receivable turnover Payable turnover Long-term Debt to capital Column 1 6.667 Times 11.11 Times 25.000 Times 0.195:1 Column 2 16.667 Times 7.409 Times 4.444 Times 0.420 1 Required: a) Identify the common-size statements and each ratio with Carmella ltd or Luciana ltd 6 marks) Briefly explain your reasoning. b) Recreate the statement of incomes for 2017 and 2018 Carmella ltd and Luciana ltd. (14 marks) c) Using the two years of data available, estimate for each company i. Level of fixed costs ii variable costs (as a percentage of sales) (4 marks) d) The recession is expected to continue with a 20% drop in sales in 2019, Forecast the 2019 statement of income for each company. e) Comment briefly on the impact of operating and financing leverage on the 2017 to 2019 financial performance of the two firms. NB. (When answering the above questions, round off all numbers to the nearest sh.50, 000) (14 marks) (12marks) Question lb a) For Carmella limited and Luciana limited recreate the statement of financial positions for 2017 and 2018. The Statement of financial position will have the following components Cash Accounts receivable Inventory Property, plant and equipment Less accumulated depreciation bilities an Accounts payable Shortterm debt Long term debt Shareholders equity (16 marks) b) For the each of the two companies, forecast the statement of financial position and cash from operations for 2019. (Hint: use the ratios to make the required assumptions regarding levels of inventories, payables and receivables) c) Asses the strength of the cash position and cash flows of the two companies. (8 marks) 16 marks) Carmella limited and Luciana limited operate in the same industry and have equal market shares. Their operating and financial characteristics differ as Carmella limited has adopted newer manufacturing practices: It operates highly automated plants and maintains tight control of inventories consistent with just-in-time inventory techniques. To achieve these inventory levels, close coordination with suppliers and customers is needed; collections and payments are relatively prompt. Financial data for 2018 for Carmella and Luciana are as follows: Carmella Limited Luciana limited Gross plant assets Current ratio Quick ratio Return on equity Cash from operations/ Current liabilities 5.275 :1 Decline in receivables Decline in inventory Decline in accounts payable Cash from operations Cash from financing: decline in short-term debt (sh1,000,000) Cash for investment sh. 65,000,000 3.592 :1 3.192 :1 16.7% 0.942:1 (sh 4,500,000) (sh.6,000,000) (sh.5,000,000) sh 28,250,000 Sh. 175,000,000 9.475 1 8.875 :1 13.0% (sh.3,000,000) sh 52,750,000 (sh.5,000,000) Common-size statements for Carmella ltd and Luciana ltd, prepared by your assistant, follow but they are unidentified as to which company they belong to. Sales in 2018 for both companies were one-sixth less than in 2017 Common-size statements Company? 2017 100% 63.89% Company? 2018 100% 66.67% 2017 100% 58.33% 2018 100% 66.67% Sales COGS Sales and administrative Expenses Interest 19.44% 1.67% 3.75% 88.75% 11.25% 20.00% 2.00% 2.83% 91.50% 8.50% 17.78% 3.89% 5.00% 85.00% 15.00% 20.00% 4.67% 21 7% 93.50% 6.50% axes Sub-total Net income Finally, your assistant also computed the ratios shown for 2018 (again unidentified as to company). In addition, the ratios are mixed up: some in column 1 belong to Carmella limited and some to Luciana limited (similarly, the ratios in column 2 are a mixture of Carmella limited and Luciana limited) Inventory turnover Receivable turnover Payable turnover Long-term Debt to capital Column 1 6.667 Times 11.11 Times 25.000 Times 0.195:1 Column 2 16.667 Times 7.409 Times 4.444 Times 0.420 1 Required: a) Identify the common-size statements and each ratio with Carmella ltd or Luciana ltd 6 marks) Briefly explain your reasoning. b) Recreate the statement of incomes for 2017 and 2018 Carmella ltd and Luciana ltd. (14 marks) c) Using the two years of data available, estimate for each company i. Level of fixed costs ii variable costs (as a percentage of sales) (4 marks) d) The recession is expected to continue with a 20% drop in sales in 2019, Forecast the 2019 statement of income for each company. e) Comment briefly on the impact of operating and financing leverage on the 2017 to 2019 financial performance of the two firms. NB. (When answering the above questions, round off all numbers to the nearest sh.50, 000) (14 marks) (12marks) Question lb a) For Carmella limited and Luciana limited recreate the statement of financial positions for 2017 and 2018. The Statement of financial position will have the following components Cash Accounts receivable Inventory Property, plant and equipment Less accumulated depreciation bilities an Accounts payable Shortterm debt Long term debt Shareholders equity (16 marks) b) For the each of the two companies, forecast the statement of financial position and cash from operations for 2019. (Hint: use the ratios to make the required assumptions regarding levels of inventories, payables and receivables) c) Asses the strength of the cash position and cash flows of the two companies. (8 marks) 16 marks)