Question 5 (29 marks) Mola Mola Waves Ltd is a retailer of surfing boards and swimming wear, with stores throughout the coast of Namibia. The company's most recent summarised financial statements, together with comparative figures for the previous two years are given below: Mola Mola Waves Ltd STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2020 2019 2018 NS000 NS000 NS000 ASSETS Non-current Assets Property, plant and equipment 640 580 Currentes 2.520 2 200 Inventory 1 240 1 050 Trade and other receivables 1 270 1 100 Cash 10 50 TOTAL ASSETS 3 160 2 780 EQUITY AND LIABILITIES Equity 720 700 NS 1 Ordinary share capital 200 200 Retaindeaminas 520 500 Non-current liabilities Long-term borrings 640 400 560 1 800 830 910 00 2360 680 200 480 400 Current liabilities Trade and other payables Taxwele Bank overdraft TOTAL EQUITY LIABILITIES 1 800 560 20 1 220 3160 1 680 620 40 1 020 2 780 1 280 800 40 640 2360 AND Mola Mota Waves Ltd STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2020 2019 2018 NS 000 NS000 NS000 Sales 5180 4520 3790 Cost of sales (3500) (3000) (2 500) Gross profit 1680 1 520 1 290 Operating costs (1 400) (1 280) (1 100) Operating profit 280 2:40 190 Finance costs (220) (120) (50) Profit before tax 60 120 140 Taxation (20) (40) (40) Profit for the period 40 100 The following information is relevant: In recent years, the company has opened a number of new stores in order to achieve growth in sales. It has also tried to improve the range and quality of its product offering by broadening its supplier base. As a result of these decisions, the liability to the people's bankers has increased substantially. The bank overdraft is unsecured and the bank has set a limit of NS 1.4 million on the overdraft. The long-term borrowings are secured over the assets of Mola Mola Waves Ltd. Repayment is due on 31 March 2023 The corporation tax is 20% . Given the steady increase in the bank overdraft which has taken place in the recent years, the company has recently contacted the bank to request an increase in the overdraft limit. You are an accountant employed by Mola Mola Waves Led's bankers. The bank is concerned at the increase in the level of the company's overdraft (and the request to increase it further) and your manager has asked you to conduct an analysis on the company's financial statements Required: a) Calculate the following ratios for Mola Mola Waves LidLtd for the year ended 31 March 202012 marks) The comparative ratios for years 2019 and 2018 have already been computed. Use the year-end figures (do not use averages) 2019 2018 Gross profit percentages 33.6% 34.0% Operating percentages 5.0% Retum on total assets 6.5% 5.9% Interest bearing debt to interest bearing debt + equity 67% 60% Interest cover (times) 2.0 times 3.8 times Current ratio 1.4 Quick (Acid-test) ratio 0.7 Inventory holding period 128 days 121 days Receivables collection period 89 days 88 days Payable payment period 75 days 88 days Totalt turnover 1.6 times 16 times b) Write a report to the regional manager which analyses the financial performance and position of Mola Mola Waves Led for the period covered by the financial statements. (17 marks) (NB: your report may take any form you wish, bu should specifically address the particular concern of the bank regarding the rapidly increasing overdraft. Therefore, your report should Idents of poor performance which could have contributed to the increase in the overdraft, and furier information that wight be useful to the decisions on whether or not to approve the company's request The End
