Accounting Business Reporting for Decision Making

560 Accounting: Business Reporting for Decision Making

Required

a. Compute the creditors turnover for Toowong Ltd’s trade creditors for the last four years.

b. What does this ratio trend tell you about the company?

13.30 Arranging short-term finance   LO5

Advantage Tennis Coaching in Brisbane offers coaching for junior, elite and mature tennis

players. Nicholas Cash, the sole proprietor, has identified that the business cycle will be seas-

onal, with most activities in the spring and summer months. As a result, Nicholas is predicting

net working capital will be negative from the beginning of April to the end of September.

Nicholas arranges with his bank for funds to finance net working capital during this period. He

requires 180-day money and about $80 000. His bank offers commercial bills at 6 per cent yield,

including fees.

Required

a. How much does Advantage Tennis Coaching receive?

b. How much must the business repay?

13.31 Managing equity finance   LO7

Chico Chocks Ltd is a listed company with 60 million shares issued. It wants to raise more

capital by means of a rights issue. The current market price is $12 and the subscription price is

$10. The rights will be issued on the basis of 1:5. How much will Chico Chocks raise if all rights

are taken up, disregarding any transaction costs?

13.32 Analysis of profitability, liquidity and financial structure   LO1, 2, 7

JB Hi-Fi Ltd’s 2015 balance sheet provides the following data.

2015

$’000

2014

$’000

Non-current assets

Current assets

278 115

616 898

281 694

578 147

Total assets 895 013 859 841

Equity

Non-current liabilities

Current liabilities

343 479

171 198

380 336

294 633

213 015

352 193

Total equity and liabilities 895 013 859 841

Source: JB Hi-Fi Ltd 2015, annual report, p. 65.

In 2015, JB Hi Fi Ltd earned record revenue (increased by 4.8 per cent), and the EPS increased

by 7.4 per cent. JB Hi-Fi Ltd’s profit after tax was $136.5 million in 2015 and 128.4 million in

2014.

Required

a. Comment on JB Hi-Fi Ltd’s profitability and liquidity situation.

b. Analyse and comment on JB Hi-Fi Ltd’s financing structure in the 2014–2015 period.

13.33 Arranging short-term finance    LO5

De Silva Rosa Ltd arranges a 91-day commercial bill: 91 days because the 90th day was a

Sunday. The face value is $100 000 and De Silva Rosa receives $98 505. What is the yield?

DECISION-MAKING ACTIVITIES

13.34 Indo Inc buys in sand, gravel, cement powder and steel reinforcement. These raw materials cost

about $30 million most years. Indo Inc has recently enjoyed a surge in sales after it liberalised

its credit policies. The result of the change in credit policies was that the value of accounts

receivable rose and management decided it must hold higher levels of raw material inventories.