Q3 You are given the Statement of Cash Flows for Recon Eld for the year ending 30 September 2021. 000 E000 1,627 Cash flows from operating activities Operating profit Depreciation Increase in inventory Increase in receivables Increase in payables 667 (318) (49) 149 218 2076 (1,885) (1,885) Cash inflow from operations Cash flows from investing activities Purchase of non-current assets Net cash outflow from investing activities Cash flows from financing activities Loan repayment Net cash inflow from financing activities Net decrease in cash Cash at beginning of period Cash at end of period (800) (800) (609) 450 (159) REQUIRED (a) The managing director of Recon Ltd is worried. She has not had any accountancy or finance training and the financial director is ill. You have noticed that compared to last year, there has been a significant increase in sales, and that the company took a decision not to issue any more debentures to improve the gearing ratio. You have been asked why such an apparently profitable and quick-growing company as Recon Ltd should have suffered a loss in cash in the year to 30 September 2021, and whether, taken in isolation, the loss is serious to Recon Ltd's long-term prospects. (15 marks) (6) Identify and explain FIVE steps which Recon Ltd could take to improve its cash situation (10 marks) (Total 25 marks) a) You are required to calculate the following ratios; i) Gross profit margin Post-tax return on equity iii) Quick ratio iv) Current ratio Non-current asset turnover vi) Dividend per share vii) Interest cover viii) Gearing (use Debt/Debt + Equity) Show your workings 16 marks b) On 1 April 2021, Machpo plc's shares were trading at 645p each. Calculate the price earnings ratio (PER) and briefly discuss the importance of the PER. What major corporate event might be suspected if an otherwise poorly performing but asset-rich company sees their PER rise very steeply over a short period of time? 11 marks c) Many companies consistently record quick ratios of less than 1.0, yet they continue to trade successfully. Explain how this happens, and give an example of a trade where quick ratios are often low. 4 marks d) Why might an interest cover of less than 1.0 be a cause for alarm about a company's prospects? 4 marks 35 marks