What are the two biggest problems causing the decline in profits and the two biggest issues causing the cash flow problems? Discuss why. (10)

Kathole Retail STATEMENT OF FINANCIAL POSITION: ASSETS: 28 FEB 2021 28 FEB 2022 RAND % RAND % FIXED ASSETS 950 000 23,81% 1 185 000 18,54% Furniture & Fittings 150 000 3,76% 145 000 2,27% -Equipment/Computers 360 000 9,02% 440 000 6,88% Vehicles 440 000 11,03% 600 000 9,39% CURRENT ASSETS 3 040 000 76,19% 5 208 000 81,46% Inventory 1 600 000 40,10% 2 756 000 43,11% Debtors 1 400 000 35,09% 2412 000 37,73% - Cash and Bank 40 000 1,00% 40 000 0,63% TOTAL: ASSETS 3 990 000 100,00% 6 393 000 100,00% CAPITAL: EQUITY CAPITAL Owners' Contribution Retained Earnings MEDIUM TERM LOANS CURRENT LIABILITIES -Trade Creditors Bank Overdraft Other TOTAL: CAPITAL RAND % 1 800 000 45,11% 658 000 16,49% 1 142 000 28,62% 200 000 5,01% 1 990 000 49,87% 1 640 000 41,10% 252 000 6,32% 98 000 2,46% 3 990 000 100,00% RAND % 1 653 677 25,87% 658 000 10,29% 995 677 15,57% 180 000 2,82% 4 559 323 71,32% 2 167 000 33,90% 2 294 323 35,89% 98 000 1,53% 6 393 000 100,00% Kathole Retail STATEMENT OF COMPREHENSIVE INCOME: 28 FEB 2021 28 FEB 2022 RAND % RAND % SALES 21 000 000 100,00% 29 000 000 100,00% LESS: COST OF SALES 15 750 000 75,00% 22 330 000 77,00% GROSS PROFITI 5 250 000 25,00% 6 670 000 23,00% PLUS: OTHER INCOME 210 000 1,00% 290 000 1,00% TOTAL GROSS PROFIT 5 460 000 26,00% 6 960 000 24,00% OPERATING EXPENSES: Personnel Costs: - Management Salaries - Salaries and wages Expenses - to third parties - Royalties (2%) - Franchise Fee - Water and Electricity - Rent - Bank Charges - Insurance - Accounting Fees -RSC Other Expenses: - Advertising - Bad Debts - Computer Expenses - Entertainment - Motor Vehicle Expenses - Printing and Stationary -- Postage - Telephone & Fax - Travel & Accommodation - Miscellaneous - Depreciation OPERATING PROFIT Less: Interest Paid NET PROFIT BEFORE TAX Less: Tax (30%) NET PROFIT AFTER TAX 4 557 250 21,70% 6 921 600 23,87% 23.130.00014,90% 4825 000 116,64% 680 000 3,24% 1 150 000 3,97% 2 450 000 11,67% 3 675 000 12,67% D: 5114500...2,44% 0.651 150...2,25% 210 000 1,00% 290 000 1,00% 0,00% 0,00% 18 000 0,09% 32 000 0,11% 180 000 0,86% 198 000 0,68% 6 000 0,03% 8 000 0,03% 36 000 0,17% 42 000 0,14% 19 450 0,09% 23 150 0,08% 42 000 0,20% 58 000 0,20% 915 800 24,36% 1.445 450 4,98% 88 000 0,42% 162 000 0,56% 155 000 0,74% 372 000 1,28% 55 000 0,26% 75 000 0,26% 35 000 0,17% 62 000 0,21% 143 200 0,68% 218 000 0,75% 32 600 0,16% 36 450 0,13% 75 000 0,36% 86 000 0,30% 45 000 0.21% 56 000 0,19% 76 000 0,36% 112 000 0,39% 21 000 0,10% 29 000 0,10% 190 000 0,90% 237 000 0,82% 902 750 4,30% 38 400 0,13% 45 200 0,22% 247 432 0,85% 857 550 4,08% -209 032 -0,72% 257 265 1,23% -62 710 -0,22% 600 285 2,86% - 146 323 -0,50% RATIO ANALYSIS COMPUTATION 2020/21 Gross Profit 1 / Sales Total Gross Profit/ Sales Operating Profit / Sales 25,00% 26,00% 4,30% Operating Expenses / Sales Personnel Expenses / Sales Third Party Expenses / Sales Other Costs / Sales Interest Paid / Sales Net Profit Before Tax / Sales Net Profit After Tax / Sales 21,70% 14,90% 2,44% 4,36% 0,22% 4,08% 2,86% PROFITABILITY: Gross Profit Margin Total Gross Profit Margin Operating Profit Margin Expense Analysis: - Operating Expenses - Personnel Expenses - Third Party Expenses - Other Expenses Interest Expenses Net Profit Before Tax Net Profit After Tax ACTIVITY: Total Asset Turnover Fixed Asset Turnover Current Asset Turnover Inventory Days Debtors' Days (60%) Creditors' Days LIQUIDITY: Current Ratio Acid Test Ratio SOLVENCY: Interest Cover Debt Ratio RETURN ON ASSETS ROA Before Interest (2 X 6) ROA After Interest (5a X 6) RETURN ON EQUITY RO E Before Tax RO E After Tax Sales / Total Assets Sales / Fixed Assets Sales / Current Assets Inventory * 365 / Cost of Sales Debtors * 365 / Sales Creditors *365 / Cost of Sales 5,3 22,1 6,9 37,1 40,6 38,0 Current Assets / Current Liabilities SA-Inventories / Current Liabilities 1,53 0,72 Operating Profit / Interest Total Debt / Total Assets 20,0 54,9% Operating Profit / Total Assets NPBT/ Total Assets 22,63% 21,49% NPBT/Total Equity NPAT/Total Equity 47,64% 33,35% Kathole Retail STATEMENT OF FINANCIAL POSITION: ASSETS: 28 FEB 2021 28 FEB 2022 RAND % RAND % FIXED ASSETS 950 000 23,81% 1 185 000 18,54% Furniture & Fittings 150 000 3,76% 145 000 2,27% -Equipment/Computers 360 000 9,02% 440 000 6,88% Vehicles 440 000 11,03% 600 000 9,39% CURRENT ASSETS 3 040 000 76,19% 5 208 000 81,46% Inventory 1 600 000 40,10% 2 756 000 43,11% Debtors 1 400 000 35,09% 2412 000 37,73% - Cash and Bank 40 000 1,00% 40 000 0,63% TOTAL: ASSETS 3 990 000 100,00% 6 393 000 100,00% CAPITAL: EQUITY CAPITAL Owners' Contribution Retained Earnings MEDIUM TERM LOANS CURRENT LIABILITIES -Trade Creditors Bank Overdraft Other TOTAL: CAPITAL RAND % 1 800 000 45,11% 658 000 16,49% 1 142 000 28,62% 200 000 5,01% 1 990 000 49,87% 1 640 000 41,10% 252 000 6,32% 98 000 2,46% 3 990 000 100,00% RAND % 1 653 677 25,87% 658 000 10,29% 995 677 15,57% 180 000 2,82% 4 559 323 71,32% 2 167 000 33,90% 2 294 323 35,89% 98 000 1,53% 6 393 000 100,00% Kathole Retail STATEMENT OF COMPREHENSIVE INCOME: 28 FEB 2021 28 FEB 2022 RAND % RAND % SALES 21 000 000 100,00% 29 000 000 100,00% LESS: COST OF SALES 15 750 000 75,00% 22 330 000 77,00% GROSS PROFITI 5 250 000 25,00% 6 670 000 23,00% PLUS: OTHER INCOME 210 000 1,00% 290 000 1,00% TOTAL GROSS PROFIT 5 460 000 26,00% 6 960 000 24,00% OPERATING EXPENSES: Personnel Costs: - Management Salaries - Salaries and wages Expenses - to third parties - Royalties (2%) - Franchise Fee - Water and Electricity - Rent - Bank Charges - Insurance - Accounting Fees -RSC Other Expenses: - Advertising - Bad Debts - Computer Expenses - Entertainment - Motor Vehicle Expenses - Printing and Stationary -- Postage - Telephone & Fax - Travel & Accommodation - Miscellaneous - Depreciation OPERATING PROFIT Less: Interest Paid NET PROFIT BEFORE TAX Less: Tax (30%) NET PROFIT AFTER TAX 4 557 250 21,70% 6 921 600 23,87% 23.130.00014,90% 4825 000 116,64% 680 000 3,24% 1 150 000 3,97% 2 450 000 11,67% 3 675 000 12,67% D: 5114500...2,44% 0.651 150...2,25% 210 000 1,00% 290 000 1,00% 0,00% 0,00% 18 000 0,09% 32 000 0,11% 180 000 0,86% 198 000 0,68% 6 000 0,03% 8 000 0,03% 36 000 0,17% 42 000 0,14% 19 450 0,09% 23 150 0,08% 42 000 0,20% 58 000 0,20% 915 800 24,36% 1.445 450 4,98% 88 000 0,42% 162 000 0,56% 155 000 0,74% 372 000 1,28% 55 000 0,26% 75 000 0,26% 35 000 0,17% 62 000 0,21% 143 200 0,68% 218 000 0,75% 32 600 0,16% 36 450 0,13% 75 000 0,36% 86 000 0,30% 45 000 0.21% 56 000 0,19% 76 000 0,36% 112 000 0,39% 21 000 0,10% 29 000 0,10% 190 000 0,90% 237 000 0,82% 902 750 4,30% 38 400 0,13% 45 200 0,22% 247 432 0,85% 857 550 4,08% -209 032 -0,72% 257 265 1,23% -62 710 -0,22% 600 285 2,86% - 146 323 -0,50% RATIO ANALYSIS COMPUTATION 2020/21 Gross Profit 1 / Sales Total Gross Profit/ Sales Operating Profit / Sales 25,00% 26,00% 4,30% Operating Expenses / Sales Personnel Expenses / Sales Third Party Expenses / Sales Other Costs / Sales Interest Paid / Sales Net Profit Before Tax / Sales Net Profit After Tax / Sales 21,70% 14,90% 2,44% 4,36% 0,22% 4,08% 2,86% PROFITABILITY: Gross Profit Margin Total Gross Profit Margin Operating Profit Margin Expense Analysis: - Operating Expenses - Personnel Expenses - Third Party Expenses - Other Expenses Interest Expenses Net Profit Before Tax Net Profit After Tax ACTIVITY: Total Asset Turnover Fixed Asset Turnover Current Asset Turnover Inventory Days Debtors' Days (60%) Creditors' Days LIQUIDITY: Current Ratio Acid Test Ratio SOLVENCY: Interest Cover Debt Ratio RETURN ON ASSETS ROA Before Interest (2 X 6) ROA After Interest (5a X 6) RETURN ON EQUITY RO E Before Tax RO E After Tax Sales / Total Assets Sales / Fixed Assets Sales / Current Assets Inventory * 365 / Cost of Sales Debtors * 365 / Sales Creditors *365 / Cost of Sales 5,3 22,1 6,9 37,1 40,6 38,0 Current Assets / Current Liabilities SA-Inventories / Current Liabilities 1,53 0,72 Operating Profit / Interest Total Debt / Total Assets 20,0 54,9% Operating Profit / Total Assets NPBT/ Total Assets 22,63% 21,49% NPBT/Total Equity NPAT/Total Equity 47,64% 33,35%