Unit: Advanced Financial Management
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Login to Access| Assets: | Sh.“000” | Liabilities and equity | Sh.“000” |
| Cash | 40,000 | Accounts payable | 500,000 |
| Receivables | 300,000 | Notes payable | 100,000 |
| Inventory | 400,000 | Total current liabilities | 600,000 |
| Total current assets | 740,000 | Mortgage | 400,000 |
| Land and buildings | 100,000 | Debentures | 600,000 |
| Plant (Net book value) | 500,000 | Total long term liabilities | 1,000,000 |
| Equipment (Net book value) | 800,000 | Preference share capital (10,000 shares) | 100,000 |
| Total fixed assets | 1,400,000 | Ordinary share capital (50,000 shares) | 100,000 |
| Paid in capital | 200,000 | ||
| Retained earnings | 140,000 | ||
| Total shareholders equity | 540,000 | ||
| Total assets | 2,140,000 | Total liabilities and equity | 2,140,000 |
| Sh.“000” | |
| Sales | 600,000 |
| Cost of goods sold | (350,000) |
| Selling and administration expenses | (100,000) |
| Earnings before interest and taxes (EBIT) | \(\overline{150,000}\) |
| Interest | (110,000) |
| Earnings before tax (EBT) | \(\overline{40,000}\) |
| Corporation taxes at 30% | (12,000) |
| Net income | \(\overline{\underline{28,000}}\) |
| (i) | Using the Springate Model, assess the financial health of the company. |
| (ii) | Other than the Springate Model, evaluate TWO other models of predicting corporate failure. Note: The Springate model takes the following form: Z = 1.03A + 3.07B + 0.66C + 0.4D Where; \(\text{A} = \displaystyle \frac{\text{Net working capital}}{\text{Total assets}}\) \(\text{B} = \displaystyle \frac{\text{Operating profit}}{\text{Total assets}}\) \(\text{C} = \displaystyle \frac{\text{Net profit before tax}}{\text{Current liabilities}}\) \(\text{D} = \displaystyle \frac{\text{Sales}}{\text{Total assets}}\) |
| \(\text{ Z-score} = 1.2X_1 + 1.4X_2 + 3.3X_3 + 1X_4 + 0.6X_5\) |
| - | Working capital | Retained Earnings | Earnings before interest and tax | Market value of equity | Total assets | Liabilities | Sales |
| - | Sh.“000” | Sh.“000” | Sh.“000” | Sh.“000” | Sh.“000” | Sh.“000” | Sh.“000” |
| A Ltd. | 4,000 | 60,000 | 10,000 | 20,000 | 200,000 | 120,000 | 200,000 |
| B Ltd. | 2,000 | 20,000 | 0 | 5,000 | 100,000 | 80,000 | 120,000 |
| C Ltd. | 6,000 | 20,000 | -30,000 | 48,000 | 800,000 | 740,000 | 900,000 |
| Alpha Limited Income statement for year ended 31 December 2019 | |
| Sh."000" | |
| Sales | 400,000 |
| Cost of sales | (300,000) |
| Gross earnings | 100,000 |
| Operating expenses | (60,000) |
| Operating profit | 40,000 |
| Fmancing cost. Interest | 10,000 |
| Profit before tax | 30,000 |
| Corporation tax (@ 30% | (9,000) |
| Profit after tax | 21,000 |
| Ordinary dividend proposed and paid | (11,000) |
| Ratamed profit for the year | 10,000 |
| Alpha Limited Statement of financial position as at 31 December 2019 | |
| Assets: | Sh."000" |
| Non-current assets | 300,000 |
| Current assets | 100,000 |
| Total assets | 400,000 |
| Financed by: | |
| Ordinary share capital (Sh.10 each) | 100,000 |
| Retained profit | 120,000 |
| Share premium | 40,000 |
| Equity capital | 260,000 |
| Total current liabilities: | |
| 12% preference share capital | 20,000 |
| 10% debenture capital | 40,000 |
| Total equity and liabilities | 400,000 |