Reference no: EM132568301
PCA Ltd declared bankruptcy in June 2020 soon after publishing the financial statements for the year ended December 2019. PCA Ltd's financial information for 2016 through 2018 are presented below.
PCA Ltd's Income statement for the year ended 31 December
2017 2018
(R' Millions) (R' Millions)
Revenue 1950 2 114
Cost of sales -1 413 -1 413
Gross profit 537 701
Operating expenses -452 -471
Operating profit 85 230
Interest Expense -63 -81
Profit before tax 22 149
Income tax -8 -51
Net profit 14 98
PCA Balance Sheet as at 31 December
2016 2017 2018
Assets Current assets
Cash and cash equivalent 12 10 82
Accounts receivable 297 199 315
Inventories 431 472 735
Prepaid expense and other 45 27 66
Total current assets 785 708 1 198
Non-current assets PPE 130 224 326
Other assets 736 851 1 239
Total non-current assets 866 1 075 1 565
Total assets 1 651 1 783 2 763
Liabilities and Equity
Liabilities Current liabilities Overdraft 21 30 145
Accounts Payables 289 504 600
Accrued liabilities 122 128 111
Taxes payable 17 24
Total current liabilities 432 679 880
Non-current liabilities Loans 354 412 1 188 4
Other long term liabilities 14 12 29
Total non-current liabilities 368 424 1 217
Total Liabilities 800 1 103 2 097
Equity Share capital 750 578 563
Redeemable preferable shares 101 102 103
Total equity 851 680 666
Total liabilities & Equity 1 651 1 783 2 763
REQUIRED
Question (a) Discuss whether information in the above financial statements provides any warnings about the company's eventual demise. Your answer should be based on an analysis of PCA's 2017 - 2018 activity, solvency, liquidity and profitability ratios. Marks 24
Question (b) Briefly describe any anomalies or peculiarities in PCA's ratios or financial data 10
Question (c) Breakdown PCA's ROE for 2017 - 2018 and comment in light of the current situation faced by this company.