QUESTION 2 (20 MARKS)

The Wallbeans Group is a conglomerate of several small companies, all of which specialize in the manufacture and sale of a wide range of popular processed foods. The companys shares have been trading steadily on the Johannesburg Stock Exchange for the past few years. As a result, a prospective investor has hired you as a financial consultant to provide an expert opinion on whether they should go ahead with the investment. You believe that a good starting point would be an analysis of the companys financial statements using ratio analyses. The consolidated Statement of Comprehensive Income and Statement of Financial Position of the group for the year ending 29 February 2020 are given below:

Assume that there are 365 days in a year

Required:

a) Using the following ratios,.

i. Inventory turnover (2 marks)

ii. Average collection period (2 marks)

iii. Total asset turnover (2 marks)

iv. Debt ratio (2 marks)

v. Times interest earned (2 marks)

vi. Operating profit margin (2 marks)

vii. Return on total assets (2 marks)

b) Based on your answers calculated in (a) above, comment on the groups debt position, its asset management performance, and its profitability performance in 2020 as compared to 2019. (6 marks)

Statement of Comprehensive Income for the year ending 29 February 2020 2020 Rm Continuing operations Sales revenue Profit (earnings) before interest and tax Finance costs Income from investments Share of profits of associates Profit before tax Income tax expense Profit for the year from continuing operations Discontinued operations Loss from discontinued operations Profit for the year Other comprehensive income 2 526.3 310.9 (21.3) 289.6 8.7 0.0 298.3 (109.5) 188.8 48.6 140.2 2019 Rm 2 066.9 242.2 (18.5) 223.7 7.7 0.1 231.5 (86.9) 144.6 0.0 144.6 Total comprehensive income Total comprehensive income attributable to: Owners of the company Non-controlling interests Preference shareholders 140.2 104.7 35.4 0.1 140.2 144.6 109.9 34.6 0.1 144.6 Statement of Changes in Equity as at 29 February 2020 Balance at 28 February 2019 Transfer from reserves Comprehensive income Dividends Balance as at 28 February 2020 Earnings per share Dividends per ordinary share 2020 Rm 296.7 0.0 104.7 401.4 59.7 341.7 3.58 1.33 2019 Rm 227.2 1.6 109.9 338.7 42.0 296.7 2.62 1.00 Statement of Financial Position as at 28 February 2020 ASSETS Non-current assets Property, plant and equipment Investments Current assets Inventories Receivables Holding and fellow subsidiaries Cash assets Total current assets Total assets 2020 Rm 683.1 4.1 687.2 489.6 361. 13.9 16.9 881.7 1 568.9 2019 Rm 594.2 4.6 598.8 381.3 278.0 6.3 60.5 726.1 1 324.9 EQUITIES AND LIABILITIES Equity Share capital Retained earnings Preference shares Minority interest Total equity Non-current liabilities Long-term borrowings Deferred tax Total non-current liabilities Current liabilities Trade and other payables Shareholders for dividends Current tax payable Holding and fellow subsidiaries Short-term borrowings Total current liabilities Total Equity and Liabilities 271.7 341.7 613.4 1.0 37.3 651.7 163.3 99.5 262.8 427.7 37.0 91.9 11.5 86.3 654.4 1 568.9 202.9 296.7 685.4 1.0 184.8 685.4 83.2 101.7 184.9 315.8 25.2 75.9 1.7 37.0 455.6 1 325.9