QUESTION 2 [25 MARKS]

Hall Ltd summarised financial statements for the year ended 30 June 2018 (and 2017 comparatives) are:

Income statements for the year ended 30 June:

	2018	2017
	$000	$000
Revenue	44,250	54000
Cost of sales	(38,250)	(39000)
Gross profit	6,000	15000
Distribution costs	(1575)	(1200)
Administrative expenses	(7350)	(5850)
investment income	75	300
Finance costs	(900)	(750)
Net Profit (loss) before taxation	(3750)	7500
income tax (expense) relief	600	(2250)
Net Profit (loss) for the year	(3150)	5250

Statements of financial position as at 30 June:

	2018	2017
	$000	$000
Assets
Non-current assets
Property, plant and equipment	26,400	36,750
Investments	3,600	6000
	30,000	42750
Current assets
Inventory and work-in-progress	3,300	2850
Trade receivables	3,300	4200
Tax asset	900	-
Banks	1800	150
	9300	7200
Total assets	39,300	49,950
Equity and liabilities
Equity
Equity shares of $ 1 each	19,500	18000
Share premium	1500	-
Revaluation reserve	-	6750
Retained earnings	5400	9750
	26400	34500
Non-current liabilities
Bank loan	6000	7500
Deferred tax	1800	1050
	7800	8550
Current liabilities
Trade payables	5100	4200
Current tax payable	-	2700
	5100	6900
Total equity and liabilities	39300	49,950

REQUIRED

(a) The following ratios for the year ended 30 June 2017 were calculated:

	2017
Gross profit margin	27.8%
Net profit (loss) margin	9.7%
Return on equity	15.2%
Net asset turnover	1.25 times
Debt to equity	21.7%
Current ratio	1.0 times
Quick ratio	0.6 times
Trade receivables days	28 days
Inventory & WIP days	27 days

Calculate the equivalent ratios for Hall Ltd for year ended 30 June 2018.

(i) Gross profit margin

(ii) Net Profit (loss) margin

(iii) Return on equity

(iv) Net asset turnover

(v) Debt to equity

(vi) Current ratio

(vii) Quick ratio

(viii) Trade Receivables days

(ix) Inventory and work-in-progress holding period (in days) [16 Marks]

(b) Hall Ltd, a multinational company, operates in a country where there is political and economic instability. The following information was extracted from the Chairmans Statement:

Market conditions during the year ended 30 June 2018 proved very challenging due to a sharp recession in the country. Non-recurring costs amounting to $ 6.6 million has been charged in cost of sales. The company has made a right issue of share during the year with the objective of reducing its bank loan since borrowing rate has kept on increasing since the recession. Dividend per share was reduced by 50%.

Despite the above events and associated costs, the Board believes the companys underlying performance has been quite resilient in these difficult times.

REQUIRED

Analyse and discuss the financial performance and position of Hall Ltd as portrayed by the above financial statements and the information extracted from the Chairmans Statement. [ 9 Marks]