QUESTION (30 marks)

CapeTown Elite Coffee (Pty) Ltd., is an up-and-coming high-quality coffee shop based in Cape Town. The company has a 30 June financial year-end. You have been presented with the final trial balance of CapeTown Elite Coffee (Pty) Ltd.:

Final Extract of the trial balance of CapeTown Elite Coffee (Pty) Ltd at 30 June:

Additional notes:

• Growth:

CapeTown Elite Coffee (Pty) Ltd. experienced robust growth in 2024, primarily driven by an increase in customer demand. This growth was attributed to the company’s unique position as the sole premium coffee provider in the area, which captured a larger market share and drew in more customers.
• Sales Growth:

The company observed significant sales growth, a direct result of broadening its customer base. This was achieved not just through high-quality service but also by introducing new and innovative products, such as exclusive coffee blends and gourmet snacks, which resonated well with the customer’s evolving preferences.
• Asset Acquisition:

In 2024, CapeTown Elite Coffee (Pty) Ltd. strategically invested in the latest coffee- making equipment and expanded its seating capacity by purchasing additional tables and chairs. These actions were taken to enhance the customer experience and to cater to the increasing customer footfall, ensuring the infrastructure supports the company’s growth trajectory.
• Depreciation:

CapeTown Elite Coffee (Pty) Ltd applies the straight-line depreciation method. As a result, there was a consistent increase in the accumulated depreciation of the property, plant, and equipment, reflecting the systematic allocation of the cost of these assets over their useful lives.
• Liabilities:

The company made significant strides in strengthening its financial stability by repaying portions of its short-term and long-term debt. This proactive approach to debt management underscores CapeTown Elite Coffee (Pty) Ltd’s commitment to maintaining a robust statement of financial position (balance sheet).
• Equity:

The increase in equity for the year reflects the company’s financial health, primarily due to the retention of earnings after accounting for dividend payments and other equity transactions. This indicates that the profits generated during the year were substantial, bolstering the company’s reserves and overall financial position.

• Cost of sales and Operating expenses:

The cost of sales and operating expenses witnessed an uptick, in line with the expansion in sales volume and the scaling up of business operations. This increase is reflective of the company’s investment in quality and capacity to support the higher demand and ensure sustained growth.

REQUIRED:

Calculate the following financial ratios of CapeTown Elite Coffee (Pty) Ltd. for the 2024 financial year and provide brief feedback on each variance:

1. Income growth

2. Asset growth

3. Profit margin

4. Return on assets

5. Return on equity

6. Dividend payout ratio

7. Receivable turnover

8. Inventory turnover

9. Current ratio

Use the following table to prepare your answer:
*An example has been provided to help guide you with the structuring of your response.

Marks will be awarded as follows:

• Per Ratio Calculation and Feedback – 3 marks

• Presentation and communication – 3 marks

INSTRUCTIONS:

– Compile all the required documents into a single PDF file.

– Submit the PDF file on ColCampus as your final submission.

– Ensure that your work is clear, legible, and organised.

– You may complete an assignment that is handwritten, if necessary, but ensure your work is neat and tidy for readability.
– Presentation and communication and following assignment requirement instructions will be awarded 3 marks. (30 marks)

Answers to Above Questions on Financial Management

Answer 1: The financial ratios of CapeTown Elite Coffee (Pty) Ltd. for the 2024 financial year are calculated as follows:

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