Part (b) Assist Palesa in setting up the ratio analysis by – (ii) discussing the outcome of your calculations.
ANSWER
Analysis of C2C's Ratios
C2C is in a tough spot financially.
Profit dropped sharply in 2020, and the company couldn't even cover its interest payments. While things got a little better in 2021, they're still not back to normal.
Efficiency improved a bit in 2021 because they sold some buses and shut down bad routes, but it's not a major win.
Debt is still a big problem. C2C is very close to breaking its loan agreement, which could mean they have to pay back all their debt right away.
Valuation is Bad
The financial manager's attempt to value the company is completely wrong.
Wrong Math: They used the wrong numbers together, mixing a profit figure with a type of multiplier that doesn't fit.
Bad Choices: They picked a multiple from a foreign company and then made up a number to adjust it, which doesn't make any sense.
Poor Timing: Valuing C2C based on its recent profits is a bad idea because its earnings are all over the place right now. A better way would be to guess its future cash or value its assets.
Directors are Acting Unethically
The directors' actions show serious wrongdoing.
Family Favors: The CFO gave a maintenance contract to her father-in-law's company without looking at other options, which is a clear conflict of interest.
Bribery: Offering a bursary to a union leader's daughter to get him to cooperate is a bribe.
Legal Trouble: The directors might be breaking the law by continuing to run the company when it's in such a bad financial state.
Power Grab: The CFO's plan to buy shares from other directors to keep control of the company seems unfair to other investors.
No comments:
Post a Comment