f f G NO d 7% 5:30 AM Sign in to edit and save changes to this file. Question one 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 Grass plant assets Sh. 175,000,000 sh. 65,000,000 3.592:1 Current ratio 9.475 1 Ouick ratio. 8.875:1 3.192:1 13.0 % Return an equity 16.7% Cash from operations/ Current liabilities 5.275:1 0.942: ...(sh.3,000,000) Decline in receivables (sh.4,500,000) Decline in inventory. (sh.6,000,000) C Decline in accounts payable. (sh.5,000,000) Cash from operations sh52,750,000 sh28.250,000 (sh.5,000,000) Cash from financing: decline in short-term debt (sh1,000,000) Cash for investment..... C Common-size statements far Carmella Itd andd Luciana Itd, prepared by your assistant, fallow, 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? Company? 2017 2018 2017 2018 Sales 100% 100% 100% 100% 66.67 % 63.89% COGS 66.67 % 58.33% Sales and administrative II G A f f NO 7% 5:30 AM DAC_511_GROUP_AS..._MAY AUG 2019 Read-only Sign in to edit and save changes to this file. Sales 100% 100% 100% 100% 63.89 % 58.33% 66.67% COGS 66.67 % Sales and administrative Expenses 19.44% 20.00% 17.78% 20.00% 3.89% Interest 1.67% 2.00% 4.67% Taxes 3.75% 2.83% 5.00% 2.17% 85,00% Sub-total 88.75% 91.50% 93.50% Net income 11.25% 8.50% 15.00% 6.50% 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): Column 1 Column 2 Inventory turnover 6.667 Times 16.667 Times Receivable turnover 7,409 Times 11.111 Times 25.000 Times Payable turnover 4.444 Times Long-term Debt to capital 0.195:1 0.429: 1 Required: a) Identify the common-size statements and each ratio with Carmella ltd or Luciana Itd Briefly explain your reasoning. (6 marks) b) Recreate the statement of incomes for 2017 and 2018 Carmella Itd and Luciana Itd. (14 marks) c) Using the two years of data available, estimate for each company: Level of fixed costs i. variable costs (as a percentage of sales) (4 marks) ii d) The recession is expected to continue with a 20% drop in sales in 2016. Forecast the 2019 statement of income for each company. (14 marks) e) Comment briefly on the impact of operating and financing leverage on the 2017 to 2019 performance of the two firms. (12marks) financial NB. (When answering the above questions, round off all numbers to the nearest sh.50, 000) f f G NO d 7% 5:30 AM Sign in to edit and save changes to this file. Question one 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 Grass plant assets Sh. 175,000,000 sh. 65,000,000 3.592:1 Current ratio 9.475 1 Ouick ratio. 8.875:1 3.192:1 13.0 % Return an equity 16.7% Cash from operations/ Current liabilities 5.275:1 0.942: ...(sh.3,000,000) Decline in receivables (sh.4,500,000) Decline in inventory. (sh.6,000,000) C Decline in accounts payable. (sh.5,000,000) Cash from operations sh52,750,000 sh28.250,000 (sh.5,000,000) Cash from financing: decline in short-term debt (sh1,000,000) Cash for investment..... C Common-size statements far Carmella Itd andd Luciana Itd, prepared by your assistant, fallow, 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? Company? 2017 2018 2017 2018 Sales 100% 100% 100% 100% 66.67 % 63.89% COGS 66.67 % 58.33% Sales and administrative II G A f f NO 7% 5:30 AM DAC_511_GROUP_AS..._MAY AUG 2019 Read-only Sign in to edit and save changes to this file. Sales 100% 100% 100% 100% 63.89 % 58.33% 66.67% COGS 66.67 % Sales and administrative Expenses 19.44% 20.00% 17.78% 20.00% 3.89% Interest 1.67% 2.00% 4.67% Taxes 3.75% 2.83% 5.00% 2.17% 85,00% Sub-total 88.75% 91.50% 93.50% Net income 11.25% 8.50% 15.00% 6.50% 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): Column 1 Column 2 Inventory turnover 6.667 Times 16.667 Times Receivable turnover 7,409 Times 11.111 Times 25.000 Times Payable turnover 4.444 Times Long-term Debt to capital 0.195:1 0.429: 1 Required: a) Identify the common-size statements and each ratio with Carmella ltd or Luciana Itd Briefly explain your reasoning. (6 marks) b) Recreate the statement of incomes for 2017 and 2018 Carmella Itd and Luciana Itd. (14 marks) c) Using the two years of data available, estimate for each company: Level of fixed costs i. variable costs (as a percentage of sales) (4 marks) ii d) The recession is expected to continue with a 20% drop in sales in 2016. Forecast the 2019 statement of income for each company. (14 marks) e) Comment briefly on the impact of operating and financing leverage on the 2017 to 2019 performance of the two firms. (12marks) financial NB. (When answering the above questions, round off all numbers to the nearest sh.50, 000)