Question 2 Aisha was tasked to research the recent financial performance for Old Chang Kee Ltd ("Old Chang Kee"). Below is an extract of its financial statements : Consolidated Income Statement For the financial year ended 31 March 2019 $'000 2018 $'000 Revenue Cost of sales Gross profit 89,789 (32.251) 57,538 85,487 (33,249) 52,238 Other income 1,209 1,729 Selling and distribution expenses Administrative expenses Finance costs Other expenses Share of results of joint venture Profit before tax (38,039) (12.892) (329) (1,774) (301) 5,412 (35,291) (11,782) (291) (1,791) (76) 4,736 Income tax expense (1,074) (952) Profit for the year 4.338 3,784 Consolidated Balance Sheet As at 31 March 2019 $'000 2018 $'000 2017 $'000 Non-current assets Property, plant and equipment Intangible assets Investment in unquoted shares Investment in associates and joint venture Long term deposits 28,453 228 234 160 2,568 31,643 31,560 289 64 461 2,434 34,808 27,571 352 273 0 2.024 30,220 2019 $000 2018 $'000 2017 $'000 Curent assets Inventories Trade and other receivables Deposits Prepayments Amount due from associates and joint venture Cash and bank balances 1,097 336 756 1,013 625 15,447 19,274 1.192 277 1,015 1.192 0 12,787 16,463 705 253 1,040 2,939 0 15,555 20,492 Total assets 50,917 51.271 50,712 Curent liabilities Trade and other payables Other liabilities Provisions Bank loans Finance lease Liabilities Provision for tax 7,491 176 2,390 1,430 146 1,321 12,954 7,891 170 2.398 1.430 166 697 12.752 8,252 170 2,285 4,230 117 1,129 16,183 Non-current liabilitie: Bank loans Finance lease liabilities Deferred tax liabilities 7,748 502 1,256 9,506 9,179 506 1.336 11.021 6,032 160 963 7,155 Equity Share capital Retained earnings Other reserves 13,964 14,398 95 28,457 13.964 13,515 19 27.498 13,964 13,372 38 27,374 Total equity and liabilities 50,917 51.271 50,712 (a) Compose a memorandum to Old Chang Kee's senior management examining the company's liquidity and activity ratios. In doing so, you are expected to show your computations using an Excel spreadsheet and include chats where appropriate. (24 marks) (6) Compare Old Chang Kee's return on equity (ROE) for FY 2019 to FY 2018. Interpret the results using the original DuPont equation. (10 marks) Profit for FY 2019 is $4.33 million. But Aisha noted that this was significantly different from cash flows generated from operating activities of $10.47 million. Appraise the reasons for Aisha's observations. Tip: It would be useful to read up Old Chang's FY 2019 Annual Report. (8 marks) Question 2 Aisha was tasked to research the recent financial performance for Old Chang Kee Ltd ("Old Chang Kee"). Below is an extract of its financial statements : Consolidated Income Statement For the financial year ended 31 March 2019 $'000 2018 $'000 Revenue Cost of sales Gross profit 89,789 (32.251) 57,538 85,487 (33,249) 52,238 Other income 1,209 1,729 Selling and distribution expenses Administrative expenses Finance costs Other expenses Share of results of joint venture Profit before tax (38,039) (12.892) (329) (1,774) (301) 5,412 (35,291) (11,782) (291) (1,791) (76) 4,736 Income tax expense (1,074) (952) Profit for the year 4.338 3,784 Consolidated Balance Sheet As at 31 March 2019 $'000 2018 $'000 2017 $'000 Non-current assets Property, plant and equipment Intangible assets Investment in unquoted shares Investment in associates and joint venture Long term deposits 28,453 228 234 160 2,568 31,643 31,560 289 64 461 2,434 34,808 27,571 352 273 0 2.024 30,220 2019 $000 2018 $'000 2017 $'000 Curent assets Inventories Trade and other receivables Deposits Prepayments Amount due from associates and joint venture Cash and bank balances 1,097 336 756 1,013 625 15,447 19,274 1.192 277 1,015 1.192 0 12,787 16,463 705 253 1,040 2,939 0 15,555 20,492 Total assets 50,917 51.271 50,712 Curent liabilities Trade and other payables Other liabilities Provisions Bank loans Finance lease Liabilities Provision for tax 7,491 176 2,390 1,430 146 1,321 12,954 7,891 170 2.398 1.430 166 697 12.752 8,252 170 2,285 4,230 117 1,129 16,183 Non-current liabilitie: Bank loans Finance lease liabilities Deferred tax liabilities 7,748 502 1,256 9,506 9,179 506 1.336 11.021 6,032 160 963 7,155 Equity Share capital Retained earnings Other reserves 13,964 14,398 95 28,457 13.964 13,515 19 27.498 13,964 13,372 38 27,374 Total equity and liabilities 50,917 51.271 50,712 (a) Compose a memorandum to Old Chang Kee's senior management examining the company's liquidity and activity ratios. In doing so, you are expected to show your computations using an Excel spreadsheet and include chats where appropriate. (24 marks) (6) Compare Old Chang Kee's return on equity (ROE) for FY 2019 to FY 2018. Interpret the results using the original DuPont equation. (10 marks) Profit for FY 2019 is $4.33 million. But Aisha noted that this was significantly different from cash flows generated from operating activities of $10.47 million. Appraise the reasons for Aisha's observations. Tip: It would be useful to read up Old Chang's FY 2019 Annual Report. (8 marks)