Financial Performance Analysis and Statement of Cash Flows for Zarelo Holdings Ltd

PART A (50 marks)

Select any senior Bursa (the Kuala Lumpur Stock Exchange) listed company of your choice Critically evaluate the financial performance for the last TWO years (e.g. 2019 and 2020). In this assignment, students are required to prepare a report that analyse the financial statements of the company through following sub-headings. Ensure to make reference with literature in the discussions.
a)    Background of the company.                                  (5 marks)

b)    Financial performance of the company using relevant ratio.                 (10 marks)

Examples may include: 
-    Profitability 
-    Efficiency
-    Liquidity 
-    Gearing ratio 

Students are required to:
-    Show the formula of the relevant ratio. 
-    Demonstrate the calculation

c)    Critically evaluate the reasons behind the trends – what have the management done for the two years.   (20 marks)

d)    Suggest practical improvements that would assist in attracting more investments from external stakeholders into the company.  (15 marks)

PART B (50 marks)

The following information are extracted from the financial statements of Zarelo Holdings Ltd, a player in the manufacturing sector. Specifically, Zarelo manufactures Secure Digital (SD) card for computers of different brands. 

Zarelo Holdings  
Income Statement for the year ended 31 December 2020 and  2021

    2020    2021
    RM’ mil    RM ’mil
Revenue    207    153
Cost of sales     (101)    (76)
Gross profit     106    77
Distribution expenses     (22)    (20)
Administrative expenses     (20)    (28)
Operating profit     64    29
Interest payable     (4)    (4)
Profit before taxation    60    25
Taxation    (16)    (6)
Profit for the year    44    19

Statement of financial position as at 31 December 2021
    2020    2021
    RM’mil    RM’mil
Non-current Assets
Property, plant and equipment         
Land and buildings    110    130
Plant and machinery    62    56
    172    186

Current assets        
Inventory     24    25
Trade receivables    26    25
Cash at bank     19    -    69    50
Total Assets     241    236
        
Non-current liabilities        
Borrowings- loan note (10%)    40    40
        
Current liabilities         
Borrowings (all bank overdraft)    -    2
Trade payables     37    34
Taxation     8    3     45    39
        
Owners' Equities        
Called-up ordinary share capital    100    100
Retained earnings    56    57    156    157
Total equities and liabilities    241    236

Additional information
•    Depreciation for Land and buildings and Plant and machinery in 2017 is RM11 mil and RM14 mil respectively 
•    There were no non-current asset disposals in either year. 
•    The amount of cash paid for interest equalled the expense in each year 
•    Dividends were paid totalling RM21 mil in each year 

Required:
Question 1
Using the Indirect Method, prepare a statement of cash flows for Zarelo Holdings for the year ended 31 December 2021. Show all workings.  (10 marks)

Question 2        
Critically evaluate the current cash flow situation of Zarelo Holdings and provide practical suggestions to improve the condition. Make reference to the IAS 7 Statement of Cash Flows as well as relevant literature.  (15 marks) 

Question 3
“Sustainability Accounting Standards Board (SASB) standards are intended for use in communications to investors regarding sustainability issues that are likely to impact corporate ability to create value over the long term. Use of SASB standards is voluntary. A company determines which standard(s) is relevant to the company, which disclosure topics are financially material to its business, and which associated metrics to report, taking relevant legal requirements into account1.”     

1 Legal Note: SASB standards are not intended to, and indeed cannot, replace any legal or regulatory requirements that may be applicable to a reporting entity’s operations.
Source: Sustainability Accounting Standards Board. (2018). Technology and Communication Sector: Hardware. Industry Standard Version 2018-

Critically advise the Board of Directors of Zarelo Holdings on the alarming sustainable issues pertaining to technological products. Evaluate the role of businesses and professional accountants in reference to SASB standards.       (25 marks)