ASSIGNMENT 1: 2nd SEMESTER 2021 FINANCIAL MANAGEMENT (FM202B)
Please note that this assignment consists of three sections, all of which should be completed.
| SECTION 1 Working capital [10] |
- Please answer each of the following questions:
- The following information was extracted from the financial statements of the Shoprite Holdings group:
| Extract from Shoprite Holdings group financial statements | ||
| Rm | Rm | |
| 2020 | 2019 | |
| Revenue | 83 430 | 79 711 |
| Cost of sales | – 63 389 | – 61 039 |
| Accounts receivable | 4 281 | 4 907 |
| Accounts payable | 27 592 | 24 094 |
| Inventory | 19 757 | 22 515 |
| Current assets | 40 510 | 41 474 |
| Current liabilities | 36 811 | 34 678 |
| Please use the following assumptions in calculating the ratios | ||
| 1. Only 10% of all revenue is on credit | ||
| 2. Purchases are all on credit and equate to cost of sales in a financial year. | ||
| In the calculations below do NOT use averages between 2020 and 2019. Use the data for each year. | ||
| Calculate the following | ||
| a) Average age of inventory for each year | ||
| b) Average collection period for each year | ||
| c) Average payments period for each year | ||
| d) Cash conversion cycle for each year | ||
| e) Discuss how Shoprite leverages the cash conversion cycle to its advantage |
| SECTION 2 Time value of money [20] |
- Please answer each of the following scenarios and questions for Question 2:
- Rocco and Rachel want to ensure that they are able to fund their two children’s tertiary studies and have asked you to assist them in determining how much they need to save monthly to have R3 million in 15 years from now. They believe they can get an annual interest rate of 4,5%, compounded monthly. How much should they contribute to the fund monthly? (4)
- Your friend Sizo is looking to buy a car and has a deposit of R40 000. The interest rate on offer is a fixed interest rate of 7,0% per annum, compounded monthly, for 72 months. The car costs R299 950. What will the monthly repayment be? (4)
- Mark recently inherited a trust fund that offers two alternatives: he can take a R1,5 million payout now or receive an annual payment of R155 000 at the end of each year for 12 years. If he invests the money, he can receive 7%
interest, compounded annually. Evaluate every option and advise him on which is the better option to take. (5)
- Sizwe and Dudu pool their individual savings of R1 800 each per month and deposit this into a money market account earning 5,25% interest per annum, compounded monthly. What will the balance of the account be at the end of 7 years? (3)
- Catherine intends to retire early and wants to understand how much she should save of her monthly salary of R30 000 to develop an asset that will pay her a pension every month once she has retired. Assuming that she would need to develop an asset of R5 000 000, and that she can obtain an interest rate and return of 10% per annum, compounded monthly, for the next 20 years, what should she save monthly to achieve this? (4)
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| SECTION 3 Financial analysis [35] |
The financial statements for Mr Price Group Limited are attached. Only refer to the group figures and not the company figures. The year end is 28 March. You are required to do the financial analyses and financial ratio calculations indicated below.
In your answers show your formulae, input numbers and calculations.
Mr Price Group is an omni-channel fashion value retailer. The group retails apparel, homeware, and sportswear through owned and franchised stores.
- The return on equity (RoE) for Mr Price had a material change from 2019 to 2020. Calculate the RoE for each year. [At the end of this Section you will be required to use the results of your financial analyses and financial ratio calculations or other observations to unpack the factors that brought about the change]. [2 marks]
- Calculate the return on assets for each year [2 marks]
- What has been the change in capital employed (fixed capital and working capital) from 2019 to 2020. [2 marks]
- Describe the change in working capital management from 2019 to 2020. Include a calculation and an analysis of the cash conversion cycle. [7 marks]
- Calculate the earnings before interest and taxes for each year and the change in the return on capital employed [4 marks]
- Calculate the operating profit margin for each year. Can you make any conclusion about the role of capital employed and the operating margin earned? [4 marks]
- Calculate the net profit margin for each year. Explain the difference between the net profit margin and the operating profit margin. [3 marks]
- Comment on Mr Price’s debt to equity ratio in each year. Describe the financial risk associated with Mr Price. [4 marks]
- How has the current ratio changed from 2019 to 2020 [2 marks]
- Calculate the finance charges cover ratio for 2020. Describe two uses of this ratio. [2 marks]
- Describe the underlying factors which have caused the change in the RoE from 2019 to 2020 based on your above calculations. [3 marks]
TOTAL MARKS: 65
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