CAT 1

Wetu ltd and Wao ltd provided the following financial statement for the year ended 31 st March
2020
Profit statement for the year ended 31st March 2023
Wetu Wao
Sh. Sh.
Sales 3,000,000 4,800,000
Less: cost of goods sold 1,650,000 2,700,000
Gross profit 1,150,000 2,100,000
Less: trading expenses 675,000 1,825,000
Trading profit (EBIT) 675,000 275,000
Less: Debenture interest 37,500 148,500
Net profit before taxation 637,500 126,500
Less: Corporation tax 240,000 37,950
Net profit after taxation 397,500 88,550
Less: Preference dividends 8,000 6,400
Earnings to ordinary shareholders 389,500 82,150
Less: Ordinary share dividend 187,500 60,500
Undistributed profit for the year 202,000 21,650

Statement of financial position as at 31st March 2023

Wetu Wao
Non-Current Assets Sh. Sh. Sh. Sh.
PPE at cost 1,600,000 3,800,000
Less: Depreciation 300,000 1,300,000 375,000 3,425,000
Current assets:
Stock 600,000 425,000
Debtors 375,000 455,000
Cash 120,000 1,095,000 220,000 1,100,000
TOTAL ASSETS 2,395,000 4,525,000
current liabilities
Creditors 217,500 1,120,000
Taxation 240,000 480,000
Proposed dividend 187,500 262,500
Bank overdraft _______ 645,000 97,500 1,960,000
Noncurrent Liabilities
10% debentures 375,000 1,485,000
Equity and Reserves
Ordinary share capital
750,000 650,000
(Sh. 10 par value)
8% Preference shares 100,000 80,000
 Undistributed profits 525,000 1,375,000 350,000 1,080,000
TOTAL EQUITY AND
2,395,000 4,525,000
LIABILITIES

Additional Information
1. The net purchases amounted to 1,450,000 and 2,950,000 for Wetu ltd and Wao ltd
respectively.
2. The market price per share amounted to sh 16 and sh 10 for Wetu ltd and Wao ltd
respectively as at 31st March 2023.
Required:
Evaluate the financial health of the firm using
i. Altman model
ii. Springate model
TOTAL 5 MARKS