Established Manufacturers Case Study & Financial Analysis

CASE STUDY Information

Established Manufacturers (Pty) Ltd is a South African company specialising in producing and distributing electronic components. The company operates in a highly competitive market and sells its products locally and internationally. The year has been particularly eventful for the company, filled with growth, challenges, and critical decisions that will shape its financial future.

Reflections on the Past Year

The management team, led by CEO Mr Dlamini, reviewed the company’s performance and presented the financial statements for Established Manufacturers (Pty) Ltd for the year ended 30 June 2025:

Income Statement for the Year Ended 30 June 2025

	Amount (R’000)
Sales	120,000
Cost of Sales	(78,000)
Gross Profit	42,000
Operating Expenses	(30,294)
Depreciation	4,200
Insurance	6,600
Salaries and Wages	15,000
Rent	4,494
Operating Profit	11,706
Interest Expense	(3,156)
Profit Before Tax	8,550
Income Tax Expense (30%)	(2,565)
Net Profit	5,985

Statement of Financial Position as of 30 June 2025

Assets	Amount (R’000)
Non-Current Assets	66,800
Property, Plant, and Equipment	62,000
Intangible Assets	4,800
Current Assets	47,000
Inventory	15,800
Trade Receivables	20,400
Cash and Cash Equivalents	10,800
Total Assets	113,800
Equity	71,230
Share Capital	30,000
Retained Earnings	41,230
Non-Current Liabilities	20,000
Long-term Loan	20,000
Current Liabilities	22,570
Trade Payables	15,500
Short-term Loan	7,070
Total Equity and Liabilities	113,800

The Road Ahead

Looking forward to the next financial year, the management team identified opportunities and challenges. Sales were evenly distributed over the past 12 months and are expected to grow by 5% in the next financial year, while the cost of sales remains constant at 65% of total sales revenue.

Cost pressures are real in the current economy and the following have been identified:

• Salaries and Wages were incurred evenly throughout the year. However, this is expected to increase by 4.25% after the anticipated industry-wide union negotiations in October 2025.
• Rent is paid quarterly, with the annual 10% increase effective 1 January 2026.
• Insurance premiums are paid monthly and increase by 8% on 1 July, each year.

Due to planned changes in Established Manufacturers’ credit policy, the total value of debtors is expected to double in the financial year. However, the 45-day payment terms granted to debtors will remain, despite the widely varying payment patterns.

• 50% of credit sales are collected within 30 days.
• 30% are collected within 60 days.
• 5% are written off as bad debts.
• 15% of sales are cash sales, with a 1% discount offered.

Purchases are linked to sales, with monthly purchases equal to 50% of monthly sales. 65% of purchases are made on credit, with 60-day payment terms. The balance is paid for in cash.

The total trade creditors at the end of the financial year are envisaged to increase by R4.4m YOY, while the opening inventory as of 1 July 2026 is expected to be R1m more than 1 July 2025.

A new project will commence in January 2026, with a capital investment of R1.2 million to be made in a new truck. While a 12% cash deposit is required 30 days prior, the first repayment for the truck will be on 1 July 2026. Old equipment with a zero-book value will be sold in October 2025 for R800,000, with payment terms of 30 days after the sale.

The company maintains a depreciation policy of 10% per annum on a straight-line basis.

The short-term loan will be extinguished by October 2025, while the term loan with Home Bank has an annual repayment of R5m due on 31 March 2026.

The total interest expense for FYE 2026 is expected to rise by 6%

Based on the review and discussion, the CFO projected an unfavourable bank balance of R1 837 350 at the end of October 2025. He also mentioned that given the loyalty and support of the shareholders, it is anticipated a dividend of 65 cents per share will be declared and paid out in the financial year. Established Manufacturers (Pty) Ltd has an authorised share capital of 800 000 ordinary shares of which 690 000 have been issued.

QUESTION 1

(25 marks)

Using the relevant information provided in the case study, prepare the following for Established Manufacturers (Pty) Ltd:

1. A Debtors scheduled for November 2025, December 2025, and January 2026                 (5 marks)
   1. A Cash flow projection for November 2025, December 2025, and January 2026              (20 marks)

QUESTION 2

(25 marks)

• Prepare a Projected Statement of Comprehensive Income for the next financial year, using the relevant information provided in the Case Study. (show all calculations)                      (15 marks)
  • The Projected Statement of Comprehensive Income focuses on components that contribute to the overall financial planning and decision-making process.

Discuss the benefits of the key elements of a Projected Statement of Comprehensive Income for a project manager and explain how these contribute to effective project management and financial planning.                                                                                                   (10 marks)

QUESTION 3

(25 marks)

• Using the relevant information in the Case Study, and other calculations undertaken in questions one and two, prepare a Projected Statement of Financial Position for Established Manufacturers (Pty) Ltd for the next financial year. (show all calculations)        (15 marks)

Hint/Tip: You may use the closing year-end bank amount as your “balancing figure”.

1. Identify and discuss five (5) potential sources of finance that a project manager may consider for funding a project. Explain each source’s advantages, implications, and suitability in different project scenarios.                                                                                                    (10 marks)

QUESTION 4

(25 marks)

Using the Projected Statement of Comprehensive Income and Projected Statement of Financial Position prepared in Questions 2 and 3, respectively, along with any other relevant information from the case study, calculate the following financial ratios for 2026:

• Current Ratio                                                                                                              (2 marks)
  • Acid-Test Ratio                                                                                                           (2 marks)
  • Net Profit Margin                                                                                                        (2 marks)
  • Return on Assets                                                                                                        (2 marks)
  • Return on Equity                                                                                                         (2 marks)
  • Debt-to-Equity Ratio                                                                                                    (2 marks)
  • Interest Coverage Ratio                                                                                               (2 marks)
  • Creditors Collection Period                                                                                          (4 marks)
  • Inventory turnover period                                                                                             (3 marks)
  • Earnings per share                                                                                                            (2

marks)

• Earnings retention ratio                                                                                          (2 marks)

NB: Where applicable, answers must be rounded to two decimal places.

Accounting Assignment Answers: Expert Answers on Above Financial Case Study

Debtors Schedule
As per the requirements, 50% is collected in 30 days, 30% is collected in 60 days, 5% is bad debt and 15% is cash sales with 1% discount.
The monthly sales is R120000000/12 = R10000000
Cash sales is 15% less 1% discount so: R1500000-1% = R1485000
Credit sales is 85% which is R8500000
Now 50% in 30 days which is R4250000
30% in 60 days which will be R2550000
5% bad debts = R425000
The collection in the month of November, December and January is performed by combining Cash sales, 30 day collection and 60 day collection which will be R1485000+4250000+2550000 = 8285000
So R8285000 will be the total collection each month.

Disclaimer: This answer is a model for study and reference purposes only. Please do not submit it as your own work.

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