Write a report to the regional manager which analyses the financial performance and position of Mola Mola Waves Ltd for the period covered by the financial statements. (17 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 N$ '000 NS '000 N$ 000 ASSETS Non-current assets Property, plant and equipment 640 580 Current assets 2 520 2 200 Inventory 1 240 1 050 Trade and other receivables 1 270 1 100 Cash 10 50 TOTAL ASSETS 3 160 2 780 560 1 800 830 910 60 2 360 EQUITY AND LIABILITIES Equity N$ 1 Ordinary share capital Retained earnings Non-current liabilities Long-term borrowings 720 200 520 700 200 500 680 200 480 640 400 400 Current liabilities Trade and other payables Tax payable Bank overdraft TOTAL EQUITY LIABILITIES 1 800 560 20 1220 3 160 1 680 620 40 1 020 2 780 1 280 600 40 640 2 360 AND Mola Mola Waves Ltd STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2018 N$ '000 Sales Cost of sales Gross profit Operating costs Operating profit Finance costs Profit before tax Taxation Profit for the period 2020 NS '000 5 180 (3 500) 1 680 (1 400) 280 (220) 60 (20) 40 2019 NS '000 4 520 (3 000) 1 520 (1 280) 240 (120) 120 (40) 80 3 790 (2 500) 1 290 (1 100) 190 (50) 140 (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 N$ 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 Ltd'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. The comparative ratios for years 2019 and 2018 have already been computed. Use the year-end figures (do not use averages) 2019 Gross profit percentages 33.6% Operating profit percentages 5.3% Return on total assets 6.5% Interest bearing debt to interest bearing debt + equity 67% Interest cover (times) 2.0 times Current ratio 1.3 Quick (Acid-test) ratio 0.7 Inventory holding period 128 days Receivables collection period 89 days Payable payment period 75 days Total asset turnover 1.6 times 2018 34.0% 5.0% 5.9% 60% 3.8 times 1.4 0.8 121 days 88 days 88 days 1.6 times b) Write a report to the regional manager which analyses the financial performance and position of Mola Mola Waves Ltd for the period covered by the financial statements. (17 marks) (NB: your report may take any form you wish, but should specifically address the particular concern of the bank regarding the rapidly increasing overdraft. Therefore, your report should identify aspects of poor performance which could have contributed to the increase in the overdraft, and further information that might be useful to the decisions on whether or not to approve the company's request