4.1 CONCEPTS Choose the correct term to complete each of the following statements - NSC Accounting - Question 4 - 2017 - Paper 1

The Cash Flow Statement for Brazilia Ltd for the year ended 31 October 2016 is as follows:

CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations = 749,950
Interest paid = (336,000)
**Taxation paid = (236,250)**
**Net Cash from Operating Activities = 177,700**

CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale of fixed assets = 562,000
Cash used to acquire fixed assets = (250,000)
Net Cash used in Investing Activities = 312,000

CASH FLOW FROM FINANCING ACTIVITIES
**Share repurchase = (310,000)**
**Loans taken = 120,000**
Net Cash from Financing Activities = -190,000

NET CHANGE IN CASH AND CASH EQUIVALENTS = 299,700
CASH AND CASH EQUIVALENTS AT BEGINNING = (345,450)
CASH AND CASH EQUIVALENTS AT END = (179,500)

The acid-test ratio is calculated as:

$\text{Acid-test ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\text{Current Liabilities}} = \frac{1,186,000 - 735,000}{1,236,000} = 0.36$

The % return on shareholders' equity (ROSE) is calculated as:

$\text{ROSE} = \left( \frac{\text{Net Profit after Tax}}{\text{Shareholders' Equity}} \right) \times 100 = \left( \frac{1,378,600}{7,605,800} \right) \times 100 = 18.14\%$.

Earnings per share (EPS) is calculated as:

$\text{EPS} = \frac{\text{Net Profit after Tax}}{\text{Number of Shares in Issue}} = \frac{1,378,600}{5,000,000} = 0.276\, R$.

Joni Ltd is NOT handling its working capital effectively due to an over-reliance on inventory. The current ratio for Joni Ltd is 4.40:1, which indicates excess current assets, particularly inventory, tying up too much cash.

Grayson Ltd has a debt-equity ratio indicating higher financial risk, but Joni Ltd has a lower ratio, which suggests reduced risk but less leverage for growth. One notable indicator is Grayson Ltd's ROTCE of 27%, which contrasts with Joni Ltd's lower ROTCE.

Grayson Ltd maintains a high dividend payout ratio of 98%, encouraging shareholder retention. Joni Ltd practices a lower payout ratio of 40%, aiming to retain earnings for reinvestment, which may benefit shareholders in the long run.

Grayson Ltd's market price is below NAV, which may not satisfy shareholders. Conversely, Joni Ltd's market price slightly exceeds NAV, suggesting shareholder satisfaction.