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Question 3 Synergy manufactures and sells high technology products. Sales are all on credit. Your company had no previous business dealings with Synergy but is currently considering whether to accept Synergy as a supplier to a new project. Given on the next page are Synergy's financial statements for the company's most recent two years, 20X2 and 20X1 (except that the 20X1 profit or loss statement is not available). In addition, the following information is available. 1. On 31Dec20X2, Synergy issued new shares for $1,000,000 and received the $1,000,000 on the same day. As the company had no immediate use for the money, it put the entire sum into the bank. 2. The typical 20X2 financial ratios of companies in Synergy's industry (20X2 industry averages. See table below. Required: (a) Comment on Synergy's financial situation in 20X2. (25 marks) (b) Advise your company as to whether Synergy should be accepted as a supplier. (7 marks) Question 3 (cont'd) \begin{tabular}{lr} \begin{tabular}{l} Statement of profit or loss \\ for the year to 31 December (S000) \end{tabular} & 20X2 \\ \hline Sales & 11,480 \\ Cost of sales & 9,210 \\ Gross profit & 2,270 \\ Selling and administration expenses & 1,273 \\ Profit before interest and taxation & 997 \\ Interest expenses & -207 \\ Profit before taxation & 205 \\ Taxation & 585 \end{tabular} \begin{tabular}{lrr} Balance sheet as at 31 December (S000) & 20X2 & 20X1 \\ \hline Current assets & & \\ Cash & 1,216 & 625 \\ Inventory & 2,233 & 1,804 \\ Accounts receivable & 1,722 & 792 \\ & 3,171 & 3,221 \\ Non-current assets - Plant and equipment & 3,646 & 3,315 \\ Total assets & 8,817 & 6,536 \\ & & \\ Current liabilities & 1,168 & 871 \\ Accounts payable & 770 & 759 \\ Bank borrowing & 1,938 & 1,630 \\ & 1,972 & 1,584 \\ Non-current liabilities - Bank borrowing & 3,910 & 3,214 \\ Total liabilities & & \\ & & \\ Equity & 3,200 & 2,200 \\ Issued share capital & 1,707 & 1,122 \\ Retained profit & 4,907 & 3,322 \\ & & \\ Total liabilities and equity & 8,817 & 6,536 \end{tabular}

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