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You are an analyst for ReturnsRUs Bank Pty Ltd, you have been asked to research and report on a large private company for investment opportunities. The company is called HZ&CS Furniture Pty Ltd it generates its revenue from manufacturing outdoor furniture. HZ&CS Furniture Pty Ltd are a key supplier to Harvey Norman and Freedom Furniture. The company has access to a large domestic market with operations in all capital cities, they are also leaders in metal technology and outdoor furniture construction. HZ&CS Furniture Pty Ltd have been in operation for 60 years, some of the senior executive management team are wanting to resign from their senior positions over the next 5 years and therefore looking to either sell part of the business as a trade sale or seek private equity investors. Key Financials HZ&CS Furniture Statement of Financial Position (Balance sheet) as at 30 June 2013 ($,000) 2012 ($) 2013 ($) Total current assets 1766.50 1494.1 Total non current assets 2413.3 2745.6 Total assets 4179.8 4239.7 Total current liabilities 823.3 674.1 Total non-current liabilities 436.0 286.8 Total liabilities 1259.3 960.9 Net Assets 2920.5 3278.8 Equity Contributed equity 2817.9 2795.2 Reserves (446.3) 58.1 Retained profits 548.9 425.5 Total equity 2920.5 3278.8 Income statement, year ended 30 June 2013 ($,000) 2012 ($) 2013($) Total Revenue 7458.5 8641.0 Raw materials used 5344.3 6272.6 Gross Profit 2114.2 2368.4 Less Selling and administrative 433 592 EBITDA 338.4 292.2 Depreciation and amortisation 143.9 170 EBIT 194.5 122.2 6 Other information 2012 ($’000) 2013 ($’000) Cash at Bank 123.3 132.3 Inventory 978.5 776.9 Current loans & borrowings 5 6 Non-current loans & borrowings 291.2 116.6 Non-current retirement benefit obligations 2.9 11.0 Non-current deferred tax liabilities 119.6 133.7 Dividend payout Ratio 30% 30% Answer the following questions about the company and present your answers in a report. Questions: (a) Who are the stakeholders of HZ&CS Furniture Pty Ltd? (3 Marks) (b) Identify any agency conflicts affecting the goal of maximizing shareholder value. What do owners do to minimize these conflicts? (3 Marks) (c) Discuss the current level and trend of borrowings of HZ&CS Pty Ltd has. Explain the types of borrowings a company like this would have, why might a firm prefer debt over equity? (5 Marks) (d) What accounts would you expect to make up current assets and non current assets. (1 Mark) (e) Explain the advantages and disadvantages of HZ&CS Furniture Pty Ltd paying fully franked dividends. What sort of investor would benefit from these dividends and why. (4 Marks) (f) Conduct common size financial statement analysis for the above company and discuss the results. (4 marks) 7 (g) Using ratio analysis discuss the performance of this company what ratios did you use and why? Comment on HZ&CS Pty Ltd future profitability. (4 Marks) (h) HZ&Cs Pty Ltd is expecting the following operational cash flows -$79,000, $112,000, $164,000, $84,000, and $242,000 over the next five years. If the company's opportunity cost is 15 per cent, what is the present value of these cash flows? (3 Marks) (Round to the nearest dollar.) (J). With reference to HZ&CS Furniture Pty Ltd explain the systematic and nonsystematic risk. (3 Marks) (K) Write a conclusion about HZ&CS Pty Ltd, identify any of its strengths and weaknesses. Do you think this company is a worthwhile investment? (5 Marks)



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