Reference no: EM132962958

The statement of financial position of Desperado ltd for the year 2020 is as follows:

Fixed Assets

Kshs. '000'

Intangible 123,000

Tangible 2,079,500

Investments 10,000

2,212,500

Current Assets

Stocks 479,000

Debtors 1,774,500

Cash and short-term investments 5,000

2,258,500

Current liabilities

Trade creditors 956,500

Bank overdraft 504,000

Other current liabilities 152,500

(1,613,000)

Net working capital 645,500

Total assets 2,858,000

Long-term Loans 124,000

Other long-term liabilities 33,000

Total non-current liabilities 157,000

Share capital (10 Million shares of Kshs. 30 each) 300,000

Profit and loss account

Brought forward 1,896,500

Retained for year 504,500

Shareholder fund 2,701,000

Long-term liabilities and shareholders' funds 2,858,000

Income statement of Desparado Limited for the year to December 31 2020

Ksh.'000'

Sales revenue 1,900,000

Less: Cost of Sales (880,000)

Gross Profit 1,020,000

Less: operating Expense (270,000)

Earnings before interest and taxes 750,000

Interest Expense (130,000)

Profit before tax 620,000

Less: Income Tax Expense (92,000)

Profit after tax 528,000

Less: proposed dividends (23,500)

Retained earnings 504,500

Assume that the market value of the company's stocks at the year-end was Kshs. 300 per share and the company generated a negative cash flow in the year amounting to Kshs. 93 Million.

Required:

Problem 1: Use the appropriate quantitative financial distress models to assess the financial health of the company.