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provide 'limited' or 'negative assurance' in an interim review with tests primarily consisting of
inquiries and analytical procedures, and evaluate the evidence obtained. This means our

auditors may have rightfully relied on our 'representations'. It seems implausible that we were
indeed not aware of the possibility of a fine as we were already in default, although still talking
with the NTRA at the time of the interim review. They may well assess detection risk and hence

audit risk to be higher thus increasing the need for more substantive testing and audit fee. Our
extremely high gearing could attract a qualified audit opinion on 'going concern' grounds.

3. Paying the fine and capital structure implications

Option 1: Cash and cash-equivalents

Our net working capital after adjustments (Appendix 5) is positive at S$3,436m (S$47,495 +

44,971 + 19,995 - 109,025). We have S$51,025m ($$109,025m - S$58,000m) of current
liabilities other than the fine which when matched against our S$44,971m of 'other current

assets' leaves us with a deficit of S$6,054m (S$44,971 - S$51,025m) which taken from our cash
and cash-equivalents of S$47,495m leaves us with a cash and cash-equivalents of S$41,441m
+ value of non-current assets held for sale (to Sidoms) of S$19,995m which gives cash amount

potentially available of S$61,436m which is in excess of the S$58,000m penalty by S$3,436m.

Advantages:

The pecking order theory dictates cash-in hand is the least complex and cheapest of all sources
of finance and as we will still have an excess of S$3,436m after paying the fine, we should use

cash and cash-equivalents as well as the proceeds from our monetised assets to settle the fine.

Disadvantages:

The smallest cash balance we have held in the last 5 years is S$32,933m in 2010 and
S$48,736m in 2014. Using our cash as explained above would mean we have almost 12 times

less cash (S$32,933 + S$48,736m divided by 2 divided by S$3,436m) than we have held during
the last 5 years. This will most likely damage our cash operating cycle, affect salary payments,
new supplies etc. It will defy Maynard Keynes theory that firms should hold cash for day-to-day

transactions, precaution and speculative purposes. Given our 10% CAGR for cash and cash
equivalents, we should look to hold about S$53,609m (1.1 * S$48,736m) as our cash and cash-
equivalents going into 2016. This means the maximum we can source from cash without

incurring this drawback is the cash potentially available of S$61,436m less S$53,609m equal to
S$7,826m.

Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2016'
www.charterquest.co.za | Email: thecfo@charterquest.co.za