QUESTION 1 (65 marks) Level Up Ltd ("Level Up") is a construction entity with offices strategically located in Johannesburg. Port Elizabeth, Cape Town, and Durban. The entity's construction activities are conducted in the same way and traditional format as most mainstream construction entities. Level Up is listed on the main board of the Johannesburg Stock Exchange ("JSE") in the industrial sector and its shares are currently trading on the exchange at R119 per share. The financial yearend of the entity is 31 July, and the entity has recently published its audited 2023-financial year annual financial statements. \begin{tabular}{|l|r|r|r|} \hline Retained earnings & 2864 & 2263 \\ \hline Total equity & & 5984 & 5383 \\ \hline & & & \\ \hline Non-Current Liabilities & 1 & 2989 & 3985 \\ \hline Long-term borrowings & 2989 & 3985 \\ \hline Total Non-Current Liabilities & & & \\ \hline & 2 & 871 & 799 \\ \hline Current Liabilities & 1 & 1867 & 996 \\ \hline Trade and other payables & & 10840 & 1795 \\ \hline Short-term borrowings & & & 11163 \\ \hline Total current liabilities & & 52000000 & 52000000 \\ \hline & & & \\ \hline Total Equity and Liabilities & & & \\ \hline & & & \\ \hline & & & \\ \hline \end{tabular} \begin{tabular}{|l|r|r|r|} \hline \multicolumn{4}{|c|}{ Level Up Ltd } \\ \hline & & \multicolumn{2}{|c|}{ Retained earnings } \\ \hline & Notes & 2023 & 2022 \\ & & R ' m & R m \\ \hline Opening balance & & 2263 & 1832 \\ \hline Profit for the year & 3 & 601 & 535 \\ \hline Dividends & 3 & 0 & (104) \\ \hline Closing balance & & 2864 & 2263 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline \multicolumn{4}{|c|}{ Level Up Ltd } \\ \hline \multicolumn{2}{|c|}{ Statement of Comprehensive Income for the year ended 31 July 2023} \\ \hline \multicolumn{2}{|c|}{2023} & 2022 \\ Rm & R 'm \\ \hline Revenue & 2332 & 2179 \\ \hline \end{tabular} Note 1 Level Up obtained a R4 980000 five-year loan from Delta National Bank precisely two financial years ago. According to the loan agreement, interest compounds annually at 3.2% above the South African government bond rate. Instaiments are payable annually on the anniversary of the loan. The effective interest rate for a 5 year South African government bond is currently 8.34%. Note 2 Trade and other payables consist of suppliers that provide material and other equivalent utilities to Level Up in order for Level Up to perform its business activities and services. These suppliers do not charge interest for credit purchases as long as the agreed repayment periods are met. Note 3 After carefully analysing and evaluating the financial statements, internal management reports, budgeted cash flows and future plans; the Directors of Level Up has determined that R28000 000 is available which the entity wish to give back to shareholders. This value can either be distributed to shareholders as dividends or by repurchasing shares from the current shareholders. The Directors of Level Up are currently evaluating both options. 1.1. Calculate the following ratios for Level Up Ltd for the 2023 financial year: - Current ratio - Quick ratio (Acid test ratio) - Debt ratio - Debt to equity (Debt: Equity ratio) (6 marks) 1.2. Analyse the extracts from the financial statements and answers to question 1.1. Identify the type of working capital finance policy Level Up Ltd has and motivate your answer. Supplement your answer by explaining why Level Up Ltd would want to employ this working capital finance policy. (6 marks) 1.3. Advise the directors of Level Up Ltd whether the above working capital finance policy is best for Level Up Ltd and motivate your advice. (6 marks) 1.4. Draft a report to the directors of Level Up Ltd in which you advise them whether the entity should distribute value back to the shareholders by - Option 1: Declaring a dividend, or - Option 2: Through a repurchase of shares from the shareholders. Separately for each option, include the effect that each option will have on the following 2023 financial year figures, in your report: - Share price per share - Earnings per share - Price - earnings ratio - Dividend per share - Net asset value of Level Up Ltd per share. 1.5. Identify and explain the 3 (three) most evident financial risks which Level Up Ltd are exposed to and provide 2 (two) recommendations how each financial risk can be mitigated or managed. (13 marks) 1.6. Briefly discussed 3 (three) United Nations ("UN") sustainable development goals with which Level Up Ltd may encounter conflicts with considering the entities business activities. (6 marks) Round to two decimal places where required for all calculations above. Competency Framework Reference
