Assignment Task
Case scenario
Goodness me, I cannot believe it. Why are the banks determined to stifle any growth or success of companies?’. Akito Midori, managing director of Evergreen Style Ltd, was frustrated with the news received in a letter about the company’s overdraft facility. The letter stated that the company’s overdraft (short-term loan) was soon to be reduced significantly. ‘It’s outrageous!’ agreed Dayo Milele, the production director. ‘We’ve been doing so well over the last year and this was despite all the commotion of the pandemic. That research report we commissioned even showed that globally we should be set to do well. The clients who buy from us are experiencing high demand for our products from their customers online. Plus we had a big order come in from a new very large customer – Cotton Corporation – just this morning. If we can’t keep up the overdraft, we won’t be able to sign that new contract and we will struggle to stay afloat.” Evergreen Style was started by Akito and Dayo three and a half years ago. The business is a designer and manufacturer of casual and leisure clothes aimed particularly at the younger, higher income market. From the very outset, Akito and Dayo decided that Evergreen Style would be a creatively led business. Much of their forward thinking was concerned with integrating product design and development with the sales and marketing operations of the business. The relatively new business had taken the decision to invest in its creative staff by employing a young and talented design team, led by Armani Lee. The clothing range designed by Armani’s team was welcomed with high enthusiasm by the major buyers and this was converted into firm orders by the marketing team who really capitalized on the use of social media and ‘influencers’ to endorse their clothing ranges. Evergreen Style grew slowly at first. However, sales started to increase as the brand gained its market presence both domestically and internationally. Akito and Dayo were surprised, delighted and proud of the progress the company had made in recent years but the prospect of the big new contract with Cotton Corporation was seen as particularly important. If Cotton Corporation became a regular customer, the sales of the business were likely to increase rapidly over the next few years and would establish Evergreen Style as a major player in the global market. Akito and Dayo had both invested their life savings in the business and had also taken out large mortgages on their respective houses to help finance the new business. However, this provided only a relatively small amount of the total ordinary share capital needed at start-up. In order to raise the remaining share capital, friends, family and business contacts were approached. The largest shareholder of the business is Quidsin Ltd, owned by the Sin family. It had made large profits by speculating on land prices over the years but was keen to diversify into other areas. The owners had known Akito for many years and were convinced Akito and Dayo would make a success of the new business. Quidsin Ltd currently owns 1.2 million shares, Akito: 420,000 shares, Dayo: 420,000 shares, and Armani: 120,000 shares – all shares being ordinary shares.
Required
a) Select and calculate 14 relevant financial ratios for each financial period using year-end figures. These calculations should be presented in the appendix. Calculations in the appendix are not included in maximum word count. Ratios should be calculated to 2 decimal places. Do not invent data/information. Use only the data/information in the scenario. Do note that the marks available are for correct figures only. You should utilise ratios from the module study materials. Include other ratio-related analyses referred to in the module study materials, as appropriate and if relevant, to complement your ratio analyses. These other complementary analyses should be included within the Appendix (not included in the word count) and should be commented upon within the report for Requirement c). These analyses will not receive specific marks for individual calculations but will receive marks for their relevant contribution to qualitative insights within the report overall.
b) Using the indirect method of preparation, construct a Statement of Cash flows for the most recent financial perio
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