Instructions: This section contains TWO (2) questions worth Sixty (55) marks. Please answer ALL questions.

Question 4 (45 marks)

Statement of Financial Performance for year financial year ended December 31.

2020

2019

2018

Revenue/Sales

?

?

?

Cost of sales .

(10,971,463)

(10,609,240)

(11,238,041)

Gross profit

9,134,036

7,127,059

6,279,834

Operating expenses

(2,332,482)

(2,454,031)

(2,136,888)

Operating earnings before other income (expenses), net

6,801,554

4,673,028

4,142,946

Other (expenses) income, net

(506,840)

(420,257)

31,183

Operating earnings .....

6,294,714

4,252,771

4,174,129

Financial income .

10,363

11,698

12,442

Financial expenses ....

(811,755)

(881,740)

(665,438)

Loss on foreign exchange

(1,060,275)

(640,362)

(212,625)

Earnings before taxation ...

4,433,047

2,742,367

3,308,508

Taxation charge

(1,228,141)

(853,736)

(828,568)

NET INCOME ...

3,204,906

1,888,631

2,479,940

Statement of Financial Position as at December 31

2020

2019

2018

CURRENT ASSETS

Cash at bank and on hand

513,092

544,549

413,781

Trade accounts receivable, net

141,401

509,424

344,590

Other accounts receivable

86,967

76,958

250,267

Inventories, net

2,370,708

2,208,560

1,719,239

Accounts receivable from related parties

150,057

73,648

58,294

Accounts receivable from subsidiaries

2,733

148,860

Other current assets

74,109

56,103

103,606

Total current assets

3,339,067

3,469,242

3,038,637

NON-CURRENT ASSETS

Other investments

0,000

4,000

Property, machinery and equipment, net

22,981,205

23,629,432

23,674,963

Accounts receivable from related parties

1,521

-

-

Total non-current assets

22,982,726

23,629,432

23,678,963

TOTAL ASSETS

26,321,793

27,098,674

26,717,600

CURRENT LIABILITIES

Other financial obligations

1,108,114

673,027

826,647

Trade payables

3,053,952

2,467,376

1,953,019

Accounts payable to related parties

585,169

527,383

749,734

Accounts payable to subsidiary

-

3,106

-

Other current liabilities

1,839,006

1,284,872

907,248

Total current liabilities

6,586,241

4,955,764

4,436,648

NON-CURRENT LIABILITIES

Long-term debt

4,442,650

9,155,656

11,387,028

Other financial obligations

1,122,416

2,496,746

3,021,805

Employee benefits

882,360

839,047

832,804

Deferred tax liabilities

1,700,957

1,285,723

614,128

Long-term accounts payable to related parties

-

4,207

-

Other non-current liabilities

50,121

54,094

-

Total non-current liabilities

8,198,504

13,835,473

15,855,765

TOTAL LIABILITIES

14,784,745

18,791,237

20,292,413

STOCKHOLDERS EQUITY

Share capital: Ordinary stock units

1,808,837

1,808,837

1,808,837

Capital contribution

3,839,090

3,839,090

3,839,090

Reserves: Realised capital gain

1,413,656

1,413,656

1,413,656

Other reserves

1,254,506

1,254,506

350,864

Accumulated net income (losses)

1,910,809

(8,652)

(987,260)

Total stockholders' equity

11,537,048

8,307,437

6,425,187

TOTAL LIABILITIES & STOCKHOLDERS EQUITY

26,321,793

27,098,674

26,717,600

The 1,808,837 issued shares have a par value of $1.00 each.

Accumulated net income (losses) for 2017 ($3,879,626).

In addition, the following information were also available from the stock trading sheets for all three years.

2020

2019

2018

2017

Stock price as at January 31

72.75

42.75

32.67

Stock price as at December 31

62.81

83.41

42.40

30.00

The financial statements set out above were extracted from the published accounts Cemetico Ltd a manufacturing company listed on the local Stock Exchange

Required

You are the Credit Officer BCN a local commercial bank. Cemetico has now approach your institution for credit support.

(a) Using the current ratio as the only measure, would you have loaned $3,500,000 to this company in 2020? Show all working using the three-year trend to support your conclusion.

(b) If Cemetico had a fire on January 1, 2021 that destroyed much of its productive capacity that will take about 2 years to rebuild, and 80% of its trade payables represent 75% of the receivables of one of your other customers, what action would you take as it relates to this latter customer?

(c) Using gross profit margin as the measure for all three years, state whether or not you believe that this company is operating in a highly competitive market or if it is a monopoly.

(d) Calculate the Altman Z-Score for the three all three years. Show all workings to support your conclusions (work to four decimal places).

(e) Comment on the Z-score for each of these three years.

(f) Use the result of your Z-score calculations to decide whether or not you would have loaned $3,500,000 to this company in 2020.

(g) If inflation in 2021 is 6%, do you believe that shareholders who are holding the stock from 2017 are happy? (Hint: Look the Return on Equity for all three years)