QUESTION 2 (45 marks) Check Ltd. is the parent entity of Leather Fit Ltd. (57% shareholding) and Coco Joy Ltd. (52% shar

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QUESTION 2 (45 marks)
Check Ltd. is the parent entity of Leather Fit Ltd. (57%
shareholding) and Coco Joy
Ltd. (52% shareholding).
Leather Fit Ltd.
Leather Fit Ltd. is a South African leather shoes manufacturer (as
can be seen from
the acronym “Ltd” at the end of the entity’s name). The entity
obtains leather from local
farmers and then manufactures various leather shoes for men and
women.
A noteworthy portion of the manufactured leather shoes are sold and
shipped to
American retailers.
Coco Joy Ltd.
Coco Joy Ltd. is a chocolate and other candy retailer who purchases
their chocolate
products from the United Kingdom (UK) and sells it to the South
African market.
In terms of these chocolate items, the UK market has a perfect
competition structure
as all chocolate items, per type, are sold at more or less a
similar price. Coco Joy Ltd.
often purchase on short-term credit from these suppliers.
Once the chocolates have been received, Coco Joy Ltd. sells them to
their customers.
Customers are allowed to open an account and purchase on credit
from Coco Joy Ltd.
if they make bulk purchases.
Check Ltd. has a 50:50 debt-equity ratio. All long-term loans have
an interest rate
attached to them of 2.9% above prime rate.
Required:
For questions 2.1 and 2.2 below , provide your answer in the
following format, per
financial risk identified:
2.1 Name of financial risk
2.1 Explanation of financial risk identified 2.2
Possible financial risk management approaches
2.1. Identify and explain the financial risks pertaining to the
Check Ltd group. (19 marks)
2.2. For each financial risk identified, list and explain two
possible financial risk
management approaches. (26 marks)