3.1 Liquidity Explain whether or not the company is managing their working capital efficiently - NSC Accounting - Question 3 - 2023 - Paper 1

To determine the total number of additional shares that Denise purchased:

Denise became the majority shareholder by owning 51% of the shares. If the total number of shares is denoted as T, we have: $T = \frac{540000}{0.49} = 1,102,040.82$

Thus, the total number of shares rounded to the nearest whole number is 1,102,041.

Now, we find how many shares she needed to reach 51%: $51\%\ of\ T = 0.51 * 1,102,041 = 562,040.71$

So, the total number of additional shares she purchased is: $562,041 - 540,000 = 22,041$ Therefore, Denise purchased 22,041 additional shares.

Denise may have wanted to become the majority shareholder to gain greater control over the company's decisions and direction. This control would allow her to implement her vision for the company more effectively, influence its strategic decisions, and potentially boost shareholder value.

1. The company decided to issue new shares for R750,000, compared to the previous year's decision of buying back shares worth R250,000.
2. Additionally, the directors repaid R1,800,000 of a loan, whereas, in 2022, they borrowed R3,500,000.

One reason for these decisions is that the company aims to strengthen its financial position by reducing debt and increasing equity, leading to a healthier balance sheet.

The decisions taken by the directors are likely to reduce the degree of financial risk. The debt/equity ratio decreased from 4:1 to 1:1, indicating a balanced structure that mitigates risk and allows for better financial stability.

These decisions positively impacted the gearing of the company, as the Return on Capital Employed (ROCE) dropped from 11.4% to 9%, showing that the company is less reliant on debt financing, thereby reducing risk.

1. The increase in the dividend payout ratio from 67.6% to 106.7% means that funds are being diverted from potential reinvestment into the company, which could harm long-term growth.
2. High dividend payouts may lead to unsustainable financial practices. Shareholders worry this may deplete reserves that could be essential for future development.

Shareholders are likely to be dissatisfied. For example, the Earnings per Share (EPS) decreased from 74c to 60c, indicating a drop in profitability. Also, the Dividend per Share (DPS) saw a decline from 50c to 64c, which might not meet shareholders' expectations for reliable returns.

1. Cash and cash equivalents: The cash balance decreased to R836,000 from R1,914,000, which signals potential liquidity issues and raises concerns about the company's ability to meet short-term obligations.
2. Market price of shares on JSE: The market price fell below the NAV of 1.07, which indicates a lack of investor confidence and suggests that the company might be undervalued due to perceived poor future performance.