Question
Read the case study and answer the questions that follow: ORBIT LIMITED: FINANCIAL PERFORMANCE AND FORECASTING The mission of Orbit Limited is to achieve its
| Read the case study and answer the questions that follow: | |
| ORBIT LIMITED: FINANCIAL PERFORMANCE AND FORECASTING The mission of Orbit Limited is to achieve its vision by providing an innovative product and creative customer experiences. Its talented staff are guided by the values, social conscience and customer-centric mindset espoused by the board of directors. At the core of Orbit Limited is its customers. The company is committed to successful growth by delivering excellent service to its customers to whom it offers quality and value. It is for these reasons that Orbit Limited was able to achieve success in the marketplace. However, the management has identified the need to improve in certain respects. The following are the financial statements for the past two years: |
| Orbit Limited | ||
| Statement of Financial Position as at 31 December: | ||
| 2022 | 2021 | |
| R | R | |
| ASSETS | ||
| Non-current assets | 11 810 000 | 7 560 000 |
| Property, plant and equipment | 10 025 000 | 6 250 000 |
| Investments | 1 785 000 | 1 310 000 |
| Current assets | 4 190 000 | 4 690 000 |
| Inventories | 1 875 000 | 2 350 000 |
| Accounts receivable | 1 925 000 | 2 200 000 |
| Cash | 390 000 | 140 000 |
| Total assets | 16 000 000 | 12 250 000 |
| EQUITY AND LIABILITIES | ||
| Equity | ? | ? |
| Ordinary share capital | 5 480 000 | 3 680 000 |
| Retained earnings | ? | ? |
| Non-current liabilities | 4 500 000 | 3 800 000 |
| Loan (20% p.a.) | 4 500 000 | 3 800 000 |
| Current liabilities | 2 300 000 | 1 500 000 |
| Accounts payable | 2 300 000 | 1 500 000 |
| Total equity and liabilities | 16 000 000 | 12 250 000 |
| Statement of Comprehensive Income for the year ended 31 December: | ||
| 2022 | 2021 | |
| R | R | |
| Sales | 10 800 000 | 7 150 000 |
| Cost of sales | (6 000 000) | (3 650 000) |
| Gross profit | 4 800 000 | 3 500 000 |
| Operating expenses | (1 800 000) | (1 200 000) |
| Depreciation | 580 000 | 200 000 |
| Other selling, general and administrative expenses | 1 220 000 | 1 000 0000 |
| Operating profit | 3 000 000 | 2 300 000 |
| Investment income | ? | ? |
| Interest expense | (880 000) | (600 000) |
| Profit before tax | 2 600 000 | 2 030 000 |
| Company tax | (728 000) | (568 400) |
| Profit after tax | 1 872 000 | 1 461 600 |
| REQUIRED | ||
| 1.1 | Calculate the increase in the retained earnings over the two-year period. | |
| 1.2 | By how much did the interest income increase or decrease from 2021 to 2022? Provide a possible reason for the change. | |
| 1.3 | Comment on the investing activities of the company. | |
| 1.4 | Calculate the amount that would be reflected as Changes in working capital in the Statement of Cash Flows for the year ended 31 December 2022. | |
| 1.5 | Without making use of any ratios, provide an interpretation of the following over the two- year period: | |
| 1.5.1 | Inventories | |
| 1.5.2 | Accounts receivable | |
| 1.6 | Calculate the cost (as a percentage) of not accepting discounts from creditors in settlement of accounts. | |
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