National Certificate: Financial Markets and Instruments Business Needs & Financial Planning Revision This assignment covers the complete unit standard 7345. Revision 1 Consider the following information: Media: Acc-Ross to put all cards on table in broad review June 29, 2006 By Roy Cokayne Pretoria - Property developer Acc-Ross, whose share price has slumped about 80 percent since listing on AltX in February, is conducting a comprehensive review of its property portfolio and business model, including its continued listing. Page 1
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For research purposes on the above company, answer the following questions: a) Which company owns Acc-Ross? b) Describe the nature of their business. c) Evaluate how the company performed during the above reporting period. d) Write a mission statement for the company. e) Describe the type of business (profile) in which they operate. f) Indicate the age of such a business entity. g) Describe the different communication channels that can be used to communicate with the business. h) Set up a brief questionnaire to use for identifying different investment / funding needs. i) Identify different risks the company faces. j) Indicate the total value that belongs to the owners in the business. k) Appraise the liquidity (cash available) in the company. l) Is the company profitable? m) What happened to their debt and exposure to interest rates? n) How will an economic downturn (or recession) affect their business? o) What are possible implications if the business rather operates as a partnership? Page 3
Suggested solution: a) OWNER: Pinnacle Point Group Ltd. As stated in the article above, Pinnacle merged with Acc-Ross. Possible reasons for the merge include synergy of complementary property development. This occurred during Nov 08. b) BUSINESS: Develop leisure resorts & residential lifestyle estates. Land is acquired, rezoned, developed & sold to investors. Income sources include Land development Construction Hotels Leisure complexes & developments Commercial & retail opportunities c) PERFORMANCE: They made a loss of R135 mil in the 2008 financial year. Marketing & sales costs are very high (11.6 mil) There was also a large asset impairment (value loss) of R120.6 mil) Other expenses nearly increased 3 times. d) MISSION STATEMENT: Provide peace of mind to families wanting a tranquil lifestyle. e) TYPE: listed company ( Limited) f) AGE: Indefinite (companies live until they are deregistered.) g) COMMUNICATION Internet communication (send an e-mail via their website) Phone the company head office direct Partake in a radio interview (for example when results are published) Write a letter to the company Speak to a developer / sales representative Read their brochures h) QUESTIONNAIRE Questions: What is your monthly cash flow State your total value of debt to be repaid Indicate your nature of business Provide the name and registration number of your business Attach the most recent audited financial statements List all current projects / tenders Other value questions i) RISKS Golf estate developed is partly destroyed due to flooding (say in George). Development commenced, but buyers are not found due to difficult economic conditions, might not be able to finance costs. Page 4
j) OWNERSHIP VALUE: Total Equity = R295 209 225 (re balance sheet) k) LIQUIDITY (consider entries on the balance sheet) Cash = 82.2mil which increased considerable from 1.6mil. This was mainly due to more stock (inventory) being sold. Current assets more than current liabilities indicating they are able to repay their debt. l) PROFITABLE: NO (refer to Income statement) Company made losses (135.9mil) The previous year was also negative losses of 17.1 mil. Decreasing interest rates might benefit them as clients will be able to obtain finance again to purchase the developments. m) DEBT EXPOSURE The company repaid their long-term (non-current) debt. Decreased from 205.4 mil to 106.7mil Short term debt however increased from 74.3mil to 110mil. The overall interest bearing debt declined which is good in a high interest rate environment. n) ECON DOWNTURN This will be negative for the business People will tend away from property & luxury / leisure estates. Credit during higher interest rates (and NCA) is more difficult to obtain. o) PARTNERSHIP There will be more limitations on the trading, for example who can join the partnership. They will have to stand surety in their personal capacity. No audit required, thus obtaining finance from the bank more difficult. Partnership ceases when a partner dies / change in ownership. If there is a claim due to poor development / damaging events, the partnership will be held liable in their personal capacity. Page 5