Question

Andrew works at a public company called TNN Manufacturing Ltd. He has observed that the company is trying to expand its operation in the market over the past one year. The management has heavily invested in plant and equipment over this period. Considering the high growth potential of the business, Andrew is planning to invest in this company by purchasing shares. He consulted with this friend Peter regarding this plan. After reviewing TNN Manufacturing’s balance sheet for past two years, Peter commented, "While I understand that this company is focusing on growth, they have a taken a risky approach to achieve the growth". Do you agree with Peter's comments? Justify your answer. TNN Manufacturing Ltd Comparative Balance Sheet As at 30th June 2019 and 2020 2019 2020 ASSETS ($) ($) Current Assets Cash at Bank 23,600 6,200 Accounts Receivable 41,800 51,100 Inventory 32,000 40,400 Other current Assets 6,400 5,900 Total Current Assets 103,800 103,600 Non-current Assets Land and Building 54,000 54,000 Plant and Equipment 62,000 190,000 Furniture 5,800 5,300 Long-term investment 9,200 9,000 Total Non-current Assets 131,000 258,300 Total Assets 234,800 361,900 LIABILITIES Current liabilities Accounts Payable 52,400 52,100 Total current-liabilities 52,400 52,100 Non-current liabilities Long-term debt 82,400 208,800 Total non-current liabilities 82,400 208,800 Total Liabilities 134,800 260,900 EQUITY Share Capital 100,000 101,000 Total Equity 100,000 101,000 Total Liability and Equity 234,800 361,900

Answer 1