Question 2 (22 marks; 33 minutes)
Turbo-D Ltd (Turbo-D) is a company, specialising in the supply of high-end
performance tyres to the public at reasonable prices. They also offer wheel alignment
and other tyre related services across South Africa and Namibia, having opened their
first location in Windhoek at the start of the current financial year.
Turbo-D has also recently become the exclusive distributor of MacBadyear tyres, a
sought-after brand, with a loyal customer base in South Africa. On the back of this,
Turbo-D is looking at an aggressive expansion plan and is targeting a number of
locations across the SADC region.
The following financial statements of Turbo-D relate:
Statement of Financial Position as at 31 December 2022
2022 2021
ASSETS R R
Non-current assets
Property, plant and equipment 220 450 108 334
Current assets 782 560 275 224
Inventories 420 456 130 414
Trade receivables 360 604 141 926
Cash and cash equivalents 1 500 2 884
Total assets 1 003 010 383 558
EQUITY AND LIABILITIES
Equity 428 519 273 562
Share capital 162 400 162 400
Retained earnings 266 119 111 162
Non-current liabilities
Long-term borrowings 463 436 72 767
Current liabilities 111 055 37 229
Trade and other payables 109 350 37 229
Bank overdraft 1 705 -
Total equity and liabilities 1 003 010 383 558
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Statement of Changes in Equity for the year ended 31 December 2022 (Retained
Earnings Extract)
2022 2021
R R
Balance 1 January 111 162 30 204
Total comprehensive income for the period 254 710 100 238
310 302 95 780
Dividends (99 753) (19 280)
Balance 31 December 266 119 111 162
Statement of profit or loss and other comprehensive income for the year
ended 31 December 2022
2022 2021
R R
Revenue 1 455 486 964 456
Cost of sales (852 338) (724 499)
Gross profit 603 148 239 957
Distribution costs (53 685) (17 312)
Administrative expenses (77 411) (77 356)
Other expenses (45 324) (15 311)
Finance costs (108 615) (15 440)
Profit before tax 318 113 114 538
Income tax expense (63 403) (14 300)
PROFIT FOR THE YEAR 254 710 100 238
Attributable to:
Owners of Turbo-D Ltd 231 710 96 822
Non-controlling interests 23 000 3 416
Additional information:
The share capital consists of 224 000 shares. On 31 December 2022 the shares were
trading at R14.77 per share (2021 R1.75 per share).
80% of the sales (revenue) were on credit.
The following information and ratios relate to the year ended 31 December 2021:
Gross profit margin 24.880%
Operating profit margin 13.477%
Net profit margin 10.393%
Earnings per share 45 cents
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Price earnings ratio 3.8889
Return on assets 8.59%
Debt equity ratio 0.4021
Finance cost coverage 8.4182
Assume that the above-mentioned information and ratios are correctly calculated.
Turbo-D has a targeted capital structure of Debt to equity ratio of 1.5.
REQUIRED Marks
(a) DO NOT USE AVERAGES TO CALCULATE THE RATIOS.
BASE YOUR CALCULATIONS ON 2022 ONLY.
Calculate the following ratios for the year ended
31 December 2022:
1
a) Gross profit margin 1
b) Net profit margin 1
c) Operating profit margin 1
d) Earnings per share 2
e) Price earnings ratio 1
f) Return on equity 1
g) Finance cost coverage 2
h) Trade receivables turnover days 1
i) Inventory turnover days
(b) With specific reference to the profit margins, debt : equity ratio 9
and finance cost coverage as calculated in (a) above, write in
memo in which you discuss the financial performance of Turbo-D
for the year ended 31 December 2022. Refer to the ratios provided
in your discussion.
Show all calculations clearly. Round all amounts to the second
decimal point.
TOTAL MARKS 20
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