Page 26 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY

Dividend cover – NCI N/A
shareholders

Dividend as % of profit 4,027 / 3,884 103.6%
– parent shareholders

Dividend as % of profit N/A
– NCI shareholders

Consolidated SOCIE (to calculate if dividends paid)
Parent NCI
shareholders shareholders
V$000 V$000
Retained earnings b/f 2,742
Profit after tax for year 3,884
Dividends (balancing figure) (4.027)
Retained earnings c/f 2,599

Note: there is no split between issued share capital and share premium provided for Smilebrite.
As the total of share capital plus share premium is unchanged at V$2.6m for 2017 and 2018, there
has not been an issue of shares during 2018.

Analysis

All references to 2018 / 2017 are referring to the years ending 31 December 2018 / 31 December 2017
respectively.

Note that calculations for average inventory days, average receivables’ collection period and average
payables’ credit period have been performed, although they may be of limited value, given the nature of
Smilebrite’s trading activities. However, they may be a useful point of comparison with Crowncare. This is
considered further within the analysis, which follows.

Financial performance
Smilebrite’s revenue increased by 4.1% in 2018 compared to the previous year. However, there
was negative growth in operating profit and pre‐tax profit of ‐2.0% and ‐2.5% respectively. This
could indicate that Smilebrite has had problems managing operating costs and/or has incurred
additional costs acquiring and integrating subsidiaries during the year. It is therefore possible that
the growth in revenue was due to acquisitions made during the year, rather than organic growth
in the business.

Smilebrite’s gross profit margin, operating profit margin and pre‐tax profit margin all fell from
2017 to 2018, with the 2018 margins at 36.1%, 30.1% and 29.5% respectively. The small growth in
revenue from 2017 to 2018 was more than offset by growth in costs of sales, selling and
distribution costs and finance charges.

76 KAPLAN PUBLISHING