SECTION A [30 MARKS] Answer ALL the questions in this section. Case study 1- Financial Statement Analysis Township Limited was founded in the beginning of 2020 and currently operates one brewery in Johannesburg. Township has a portfolio of three beer brands and one fruit alcoholic beverage. You recently read that beer now represents almost 60% of the total liquor market in South Africa, up from about 38% in 1980. The Fruit Alcoholic Beverage section is small as a percentage of the total liquor market (about 5%) but it is growing at about 13% per annum.Township brands are represented as follow in the alcoholic market:

category	Township Brand	Competitors
Mainstream Segment	Mahafhe	Castle Lager, Carling Black Label
Fast growing worthmore segment (Premium Segment)	Tshibuku	Pilsner Urquell, Heineken
Light beer Segment	Mkomboti	Sterling Light, Windhoek Light
Fruit Alcoholic Beverages Section	Mkumbi ( Amarula)	brutal Fruit, Barcadi Breezer

A close friend recently informed you that a guy who studies with him reckons that Township Limited is growing at a rapid pace and he thinks that it is a very good time to invest in this company. He guarantees that you can double your money in four years with this share. Your close friend comes from a rich family and he has some extra cash. He wants to take advantage of this opportunity and approached you for some financial advice.

Township Limited Statement of Financial Position as at 31 December

	2020	2021
non-current assets	9,500 000	12 350 000
Plant and equipment at cost	10 000 000	13 000 000
Less: Accumulated depreciation	( 500 000)	(650 000)
Total current assets	3 000 000	3 200 000
Inventory	1 450 000	2 200 000
Accounts receivable	700 000	1 000 000
cash and cash equivalents	850 000
Total assets	12 500 000	15 550 000
Total equity	5 735 000	8 050 000
Share Capital	5 000 000	7 000 000
Retained earnings	735 000	1 050 000
non-current liabilities	4 360 000	4 850 000
Long term debt (10%)	4 360 000	4 850 000
Current Liabilities	2 405 000	2 650 000
Accounts payable	2 065 000	1 250 000
Bank Overdraft (15%)		980 000
Current portion of long term debt	340 000	420 000
Total equity and liabilities	12 500 000	15 550 000

Statement of Financial Performance

For the year ended 31 December

	2020	2021
Revenue	14 900 000	18 300 000
Cost of goods sold	8 940 000	11 400 000
Gross Profit	5 960 000	6 900 000
Operating expenses	3 920 000	5 240 000
Depreciation	500 000	650 000
Profit before financing cost an tax	1 540 000	1 010 000
Financing costs	490 000	560 000
Profit before taxes	1 050 000	450 000
Income tax expense	315 000	135 000
Profit for the period	735 000	315 000

Gross profit margin	27.0%
Profit margin	8.4%
Return on equity	14.0%
Debtors collection period	35
Days payables ( credit purchases)	42
Inventory days	52
Times financing costs earned	4.0
Current ratio	2.0
Acid-test ratio	1.0

Notes: All ratios are based on year-end (rather than average) figures. Ignore all VAT implications. Assume a Tax rate of 30%. Net Assets = Total assets minus non-interest-bearing current liabilities. All purchases and sales are on credit. Assume 365 days in a year.

1.1 Calculate the financial ratios for the year ended 2020 by using the financial statements of Township Limited (Use the same financial ratios as given in the industry table above). (9 marks) 1.2 For each ratio calculated under question 1 above, briefly explain what it is intended to measure in your own words. ( 9 marks) 1.3 In your own words, what is the motive behind the financial statement analysis which you have done under 1 and 2 above. ( 2 marks )

Case study 2 - Working capital management The credit analyst for Ngubane Ltd has established the following data relating to the working capital cycle: Raw material delivery to completed goods 60 days. Completed goods to credit sales 30 days . Debtors collection period 90 days . Credit payment period for raw materials 40 days. 2.1 Calculate the period for which financing of working capital is required. (2 marks) List four strategies which the firm could use in order to reduce the period for which financing is required and indicate the implications of applying each strategy