66 © Question 1 Financial Management for Beginners Statement of Financial Position as at 31 March 2013 Current assets: Cash and short-term investments Accounts receivable Inventory Property, plant and equipment Non-current investments and other non-cutrent assets Total assets Current liabilities Non-current liabilities Equity Total liabilities and equity Eirias 14657 71,873 56372 26.881 20,606 190,389 37,481 17,895 135,013, 190,389 ‘Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 March 2013, Sales (al credit) Costs of goods sold Selling and administrative expenses Gir) 254,553, 149,806 69,706 Earnings before interest and taxes 35,041 Interest 2525 Earnings before taxes 32,516 Taxes 13,976 Net income 18.540 Earnings per share M413 Dividends per share RM1.80 Average inventory RM56,530 Industry averages are as follows Current ratio 250x Quick ratio 1.80x Inventory tumover ratio Ix Receivables tumover 45x Average collection period 80 days Non-current assets turnover 25x Operating profit margin 89% Net profit margin 45% Return on assets 73% Return on equity 95% Debt to equity 30% Debt ratio 23% Times interest earned 96x chapter? Evatua Requires Use the data to ¢ Question 2 The following set iam Inventory tin Debt ratio Current rato Total asses ty Receivables ty Required: Given the followir your answer. Question 3 Junior Jumbo Bert credit while the re liabilities amount t Required: a. Ifthe firm's ac b. If the firm rec receivable. © Determine Jur Question 4 The financial stater Current asset Inventory Accounts Recel Prepayments Marketable sec Bank Non-current assets Total assets(chapter 2 Evaluation of ee 67 Required: Jse the data to compute the financial ratios and interpret the results, Question 2 he following sets of ratios are industry averages. A COT Inventory turnover ratio. Debs ratio 20% 31% 15% Current ratio. 15 16 18 Total assets turnover m x 4x Receivables turnover x 13x 1% Required: Given the following three industries, match each industry with their set of corresponding ratios. Defend your answer. Consultancy firms Heavy industry Petrol service stations Question 3 Junior Jumbo Berhad has a gross profit margin of 25% znd sales of RMB milion. OF its sales, 80% are on credit while the remainder are cash sales. Junior Jumbo's current assets equal RM500,000 and current liabilities amount to RMB0,000. It also has RM36,000 in cash plus marketable securities. Required: a, _ Ifthe firms accounts receivable balance is RM250,000, determine its average collection period. b. If the firm reduces its average collection period to 12 days, determine its new level of accounts receivable, © Determine Junior Jumbo's costs of goods sold, Question 4 The financial statements of Rezki Sdn Bhd for the year ended 30 September 2012 are as follows: Rezki Sdn Bhd Statement of Financial Position as at 30 September 2012 a on Current assets: : Inventory 3,100 Accounts Receivable 1,900 Prepayments 175 Marketable securities 750 Bank 25, Non-current assets Total assets8 Represented by: Shareholders’ equity ‘Common stocks Financ 8,000 Management for Begin Retained earnings 12,200 Non-current liabilities 3,750 Accounts payable 3,500 Accruals 275 Bank overdraft __600 __4375 Total equity and debt 20,325 Rezki Sdn Bhd ‘Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 September 2012 fi Cn Sales (all cre 22,500 Less: Costs of goods sold 16,500 Gross profit 6,000 General expenses 41,250 Interest expenses 500 Depreciation 1,250 3,000 Net profit before taxes 3,000 Taxes (25%) 750 Net profit after taxes 2,250 Dividends: Interim 450 Final 900 Retained profit for the year The following are the industry averages for 2012: Current ratio ‘Quick ratio Inventory turnover ratio Average collection period Non-current assets turnover Gross profit margin Net profit margin Return on equity Times interest earned Debt ratio 15x 1x ™ 25 days 15x 27% 1056 55x 30% chapter 2 Required a Com Com c Give d Expl retur Questio, The follow Ordinary (200000. Share pre ‘Retained “Retained Dividend | ‘Market pri Required: a Calcul ig i. Pr it, Di b. Explair Question The statem« Rumbia Sdr Net non-cu Current as Cash Receivat Inventor Total asset Current tial Account: Notes pa Other cu Non-curren’ Common ecnt or Beginners apter 2 Evaluation of Financial Peformance 69 requires t a, Compute the above ratios for Rezki Sdn Bhd. B. Comment on the company’ liquidity efficiency and leverage ratios. 12,200 ‘c___ Give recommendations to improve the company's weaknesses, ans 4. Explain the effect of these ratios, as in part (b) on the firm's profitability by relating them to the risk a return trade-off. Question 5 ‘The following data is taken from Purnama’s financial statements for 2011 and 2012. 4375 7 Gen ae 20,325 eee eed co io iRM) (RM) Ordinary share capital 200,000 200,000 (200,000 ordinary shares at RM each) Share premium 128,000 128,000 Retained profits bv 432,000 512,000 Retained earnings for the year 80,000 512,000 112,000 _ 624,000 eet 840,000 952,000 Dividend per share (RM) 030 034 6,000 ‘Market price per share at the end of the year (RM) 630 756 Required: pe) a. Caleulate for each year: y 3,000 i. Earnings per share (EPS) 750 il. Price-earnings ratio (P/E) ii, Dividend payout ratio 2.250 b. Explain the uses of P/E ratio. What does a high P/E ratio indicate? Question 6 1,350 The statement of financial position and statement of profit or loss and other comprehensive income of may Rumbia Sdn Bhd for 2012 are given below. Rumbia Sdn Bhd Statement of Financial Position as at 31 December 2012 Net non-current assets 960,000 Current assets: Cash 280,000 Receivables 436,000 Inventories 500,000 1,216,000 Total assets 2,176,000 Current liabilities: Accounts payable 364,000 Notes payable 340,000 Other current liabilities 128,800 832,800 Non-current liabilities 336,000 Common equity 1,007,200 2,176,000,70 Financial Management for Beginners Rumbia Sdn Bhd * Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2012 Sales 2,400,000 Less: Costs of goods sold 1,787,200 Gross profit 612,800 Less: Expenses Selling expenses 140,000 General and administrative expenses 172,800 Earnings before interest and taxes 300,000 Less: Interest expense ___28,000 Earnings before taxes 272,000 Less: Taxes (25%) 68,000 Net income 204,000 Additional information: Market price per share at 31 December 2012: RM3.50 Number of shares outstanding: 100,000 shares ‘The industrial financial ratios for the financial year ending 31 December 2012 are as follows: Current ratio 1.25% Quick ratio 072% Inventory turnover ratio 29 Average collection period 3 months Total assets turnover 1.05x Debt ratio 46% Net profit margin 12% Return on assets 12.6% Return on equity 23.33% Price-earnings ratio 15x Required: Compute the above ratios for the financial year ending 31 December 2012. (Note: You are required to use the Ou Pont equation to compute ROE.) b. Comment on the firm's asset management ratios, leverage ratios and profitability ratios. © Based on Du Pont analysis, explain the reasons influencing the firms ROE as in part (a). d. Give recommendations to improve the firms ROE. ©. Discuss the benefits of using Du Pont analysis. Question 7 Eclipse Berhad has applied for a loan from a bank for its expansion programme. In order to evaluate the company as a potential borrower, the bank would like to compare the company with other companies in the same industry. The company has submitted the following financial statements to the bank. cuapter 2 Ba —— Current asse Cash Accounts, Inventory Net non-curr Current liab Accounts Notes pay Other cun Non-curre Common eq: ‘Common Retained « Net sales Less: Costs 0° Operati Deprec Interest Earnings bef Income tax Net profit aft Less: Ordinar Retained pro Required: a. Calculate Le a Inv Ay v To‘chapter 2 Evaluation of Financial Performance n raluate the companies nk. Current assets: Cash ‘Accounts receivable Inventory Net non-current assets Current liabilities: ‘Accounts payable Notes payable Other current liabilities Non-current liability Common equity ‘Common stocks 1 Retained earnings 150 375, 5 200 300 1,500 2,250 750 600 1650 1,500 eae Statement of Profit or Loss and Other Comprehensive Income Secu ee oe ie \. Total assets turnovern Financial Management for Beginners b. Using the Du Pont equation, calculate the return on equity of the company. c. # Youare given the follawing industry averages: gi Net profit margin 686 Total assets turnover 1x Debt ratio 40% Return on assets 6.6% i. Calculate the ROE for the industry. ii, Comment on Eclipse Bethads a. profitability asset management; and debt management. 4d. Based on Du Pont analysis, explain the factors affecting Eclipse Berhad's ROE. e. Should the bank grant the loan to Eclipse Berhad? Give reasons for your answer. Question 8 You are the finance manager of Lucrative Sdn Bhd. You would like to assess the efficiency ratios and the leverage position of the company and how these ratios affect the company's profitability, The financial statements of the company for the past two years are as follows: Statement of Financial Position as at 31 March: 2012 (RM‘000) 2013 (RM‘000) Current assets: Cash Accounts receivable Inventory Non-current assets Total assets Current liabilities: Non-current debt ‘Common equity Total liabilities and common equity 432,000 45500 5,500 53,500 69,500 99,000 145,500 275,000 312,500 432,000 533,000 44,000 50,500 176500 244,000 211,500 238,500 533,000 Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 March: 2012(RM’000) 2013 (RM‘000) Sales Costs of goods sold Gross profits Operating expenses Operating profits Interest expense Net profit before taxes Taxes Net profit after taxes 30,000 550,000 625,000 396,000 437,500 154,000 187,500 88,000 106,000, 66,000 81,500 26,000 36,500 40,000 45,000 10,000 12,000 Chapter 2 Eval Industry aver Gument " pveiage col [Inventory ts | Total assets | Debt ratio © pebtto-eqi |“ Aimesintere | Net prot m | Return on a Freturn one Required: a Compute Comment Based ont d Givethree Question 9 Siput Enterprise is Siputs acid-te Question 10 ‘Smart Corporati for Smart Corpo Question 17 Bintang Sdn Bhy etiod? Question 12 Simple Co, has a 's Simple Co's lev Question 13 Lanjut Berhad he 2x Itstimes-inte Question 14 The following dachapter 2 Evaluation of Financial Performance B industry averages: current ratio 3x Average collection period 30 days Inventory turnover ratio a Total assets turnover 1x Debt ratio 45% Debt-to-equity ratio 82% Times interest earned x Net profit margin ™% Return on assets 105% Return on equity 19% Required: 2, Compute the above ratios for Lucrative Sdn Bhd for 2012 and 2013, Comment on the firms asset management ratios, leverage position and profitability Based on Du Pont analysis, identify the factors that contribute to the firm's ROE. dd. Give three suggestions on how to improve the fir’s profitability Question 9 Siput Enterprise has current assets of RM11 400, inventories of RM4,000 and a current ratio of 2.6. What is Siput’s acid-test ratio? Question 10 ‘Smart Corporation has an average collection period of 74 days. What is the accounts receivable tumover for Smart Corporation? Use a 360-day year. Bintang Sdn Bhd has an accounts receivable turnover ratio of 3.4. What is Bintang's average collection period? Question 12 ‘Simple Co. has a debt ratio of 42%, long-term liabilities of RM20,000 and total assets of RM70,000. What is Simple Co’s level of current liabilities? Question 13 LLanjut Berhad has an annual expense of RM30,000 and pays income tax equal to 28% of earnings before tax. Its times-interest earned ratio is 4.2. What is Lanjut’s net income? Question 14 The following data is for Murni Bhd, a manufacturer of electronic calculators.a lanagement for Beginners Murni Bhd t Statement of Financial Position as at 30 April 2013 RM 14,650 Accounts receivable 71,870 Inventory 56,370 142,890 Non-current assets: Property, plant and equipment 26,880 Other non-current assets ___ 20,600 Total assets 190,370 Current liabilities 37,480 Non-current liabilities 17,900 Equity Total liabilities and equity ‘Murni Bhd Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 April 2013 Sales (al credit) Cost of sales Selling and administrative expenses, Earnings before interest and taxes Interest Earnings before taxes Taxes Net i come after taxes RM 254,500 149,800 69,700 35,000 2500 32,500 24,000 The company's ratios for the year ended 30 April 2012 are as follows: Current ratio 25x Debt ratio Inventory turnover 45x Times interest earned ‘Average collection period 80 days Net profit margin Non-current assets tumover lx Return on assets Total assets turnover 15x Return on equity Required: ‘Asa financial manager of the company you are to: use the data to compute the relevant ratios. Use Du Pont system to calculate the ROE of the firm. identify and briefly explain areas of the firm's strengths and weaknesses. oder to improve ROE. 2% 96x 10% 15% 19.23% Provide possible reasons for the weaknesses and recommend appropriate actions to be taken in Crapter 2 Question [As a junior § profitability Statementjor Beginners Chapter 2 Fval Question 15 75 {AS a junior financial manager, your first task in Kasturi Bhd is to assess the firms efficiency, liquidity, profitability and leverage. The firm’ financial statements are presented below: ‘Statement of Profit of Loss and Other Comprehensive Income for the year ended 30 April 2013, ‘Kasturi Bhd Sales (75% on credit) Cost of sales Gross profit Selling expenses Depreciation Interest on long-term loan Taxes Net profit after taxes Less: Preferred dividend Net profit 90,000 63,000 27,000 18,000 800 700 1875 5,625 625 100 Kasturi Bhd ‘Statement of Financial Position as at 30 April 2013 Assets: Cash Accounts receivable Inventory Total current assets Non-current assets Less: Accumulated depreciation Net non-current assets Total assets. Liabilities and stockholders’ equi ‘Accounts payable Notes payable Total current liabilities Non-current liability, Preferred stock Common stock Retained earnings Total equity Total liabilities and stockholders’ equity ois 9,100 13,900 30,200 53,200 38,400 6400 32,000 26,000 6,000 32,000 9,000 5,000 34,000 44,200 85,20076 The firms financial ratios for the year ended 30 April 2012 are as follows: 5 Current ratio Financial M 7 Beginner, Chapter 2. Eval 2x Quick ratio 1x aes Debt ratio 45% Time interest earned x Inventory turnover ratio x Days sales outstanding 45 days Total assets turnover 13x Net profit margin 496 Return on assets 5.2% Required: Calculate the above ratios for Kasturi Bhd. ', Using trend analysis, comment on the firm’ strengths and weaknesses. & Calculate the firm's ROE using Du Pont analysis. 4d. Discuss two ways an how to improve the firm's ROE. Question 16 ‘As a Junior financial manager, your first task in Alam Indah Berhad is to analyze the company's financial statements as presented below: ‘Alam Indah Berhad Statement of Profit or Loss and Other Comprehensive Income —— for the ys ended December 2012 Sales (85% on credit) Cost of sales Gross proft Selling expenses, Administration expenses Interest expenses Taxes Net profit after taxes Less: Preferred dividend Net profit Te The average ind 320,000 Curent ratio 180,000 Quickratio —_ Debs ratio 140,000 Time interest 28,000 Inventory tun 72,000 Dayssates ou re Total assets Net prfit mat cane Return onass ag Required: 800 = ®. Calculate th 25,600 b. Based on tl liquidity. © Prepare con income for ¢wy Beginners vysfinancial The average industry ratios for the year ended 2012 are as follows: luation of Firancial Performance ‘Alam Indah Berhad Statement of Financial Position Assets Cash Accounts receivable Inventory Total current assets Gross non-curtent assets ‘Accumulated depreciation Net non-current assets Total assets Liabilities and stockholders’ equit Accounts payable Notes payable Total current liabilities Non-current debt Preferred stock Common stack Retained earnings Total equity ‘Total liabilities and stockholders’ equity Current ratio 23x Quick ratio 15x Debt ratio 45% Time interest eared 10x Inventory turnover ratio & Days sales outstanding 30 days Total assets tumover 1x Net profit margin 85% Return on assets 16.15% Required: b Calculate the ratios for Alam Indah Bh, Based on the ratios that you have calculated in (a), comment on the firms profitability and liquidity. at 31 December 2012 RM‘000 15,500 20,800 32,600 68,900 193,500 84,000 109,500 178,400 26,000 32,000 43,000 8,000 65,900 29,500 146,400 178,400 7 Prepare common size ratios from the given statement of profit or loss and ather comprehensive income for Alam Indah Bhd.78 Financial Management for Beginners Question 17 Te financial manager of Katrina Sdn Bhd, a manufacturing fim, has decided to seeks line of creit from the Alliance Bank. This additional source of funds is needed to support a large portion of the firm's accounts payable during the next three months, which are the firm’s peak seasonal sales period. The firms most recent financial statements were presented to the bank in support of its loan request. Katrina Sdn Bhd ‘Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2012 Sales (all credit) 2,400,000 Less: Cost of goods sold 1,840,000 Gross profits 560,000 Less: Operating expenses General and administrative expenses 120,000 Depreciation expense 120,000 Operating profits Less: Interest expense Before-tax profits 280,000 Less: Taxes 70,000 Atertax profits 210,000 Katrina Sdn Bhd Statement of Financial Position as at 31 December 2012 Cash 56,000 Marketable securities 24,800 Accounts receivable 132,000 Inventories 336,000 Total current assets 548,800 Net non-current assets 1,080,000 Total assets 1,628,800 Accounts payable 228,000 Notes payable 52000 Other current liabilities 20,000 Total current liabilities 300,000 Non-current debt 600,000 Ordinary shares @ RMOSO par 500,000 Retained earnings 228,800 Total liabilities and shareholders’ equity The average Current ra Quick rat Inventory Average c: Non-curre Total asset Debt ratio Times inte Gross profi Operating Return on, Return ons Required: Compute be Identify 1 should ay Should th Recalcula Question 1 ‘Awan Biru Bhd a large portior ‘Awan Biru Bhd Statement oChapter 2 off 79 The average industry ratios are provided below to facilitate an analysis of the firm's loan request: Current ratio 18 Quick ratio om Inventory turnover ratio x Average collection period 20 days Non-current assets turnover 18x Total assets turnover 12x Debt ratio 50% Times interest earned. 85x Gross profit margin 22% Operating profit margin 12% Return on assets 10% Return on equity 20% Required: 2. Compute the above ratios for Katrina Sdn Bhd for 2012. b. Identify the financial ratios as listed above that are most crucial in determining whether the bank should approve or reject the firm's loan application, < Should the loan be approved? State your reasons. 6. Recalculate the firms return on equity using the Du Pont equation, Question 18 ‘Awan Biru Bhd is planning to seek aline of credit from Bank Bersatu. The firm needs some cash to support @ large portion of the firm's working capital during the next four months, The financial statements of ‘Awan Biru Bhd for the year ended 31 May 2013 are shown below: ‘Awan Biru Bhd ‘Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 May 2013 Sales (90% on credit) 1,500,000 Less: Cost of goods sold 830,000 Gross profit 670,000 Less: Operating expenses 430,000 Operating profit 240,000 Less: Interest expense 33,000 Earnings before taxes 207,000 Less: Taxes 51,750 Earnings after taxes 155,250 Less: Dividend 100,000 Retained profit $5,25020 Finane Management for Beginne Non-current assets 700,000 Current assets: Cash 50,000 Marketable securities 40,000 Accounts receivable 220,000 Prepayment 50,000 Inventories 150,000 510,000 Current liabilities: ‘Accounts payable 90,000 Notes payable 70,000 Accruals 65,000 225,000 Net working capital 285,000 Financed by: ‘Common stocks (RMI each) 600,000 Retained earnings 80,000 Non-current liabilities 305,000 985,000. ‘The average industry ratios are provided below to facilitate the analysis: Current ratio 2ax Times interest earned x Quick ratio 1x Net profit margin 10% Inventory turnover ratio, x Return on assets 10.5% Average collection period 45 days Retum on equity 175% Non-current assets turnover 18x Dividend payout ratio 509% Debt ratio 40% Dividend per share RMO.15 Required: 2. Calculate the above ratios for Awan Biru Bhd (use a 360-day year to calculate the ratios) b, Comment briefly on the company's liquidity and debt management ratios. © Should Bank Bersatu approve the loan? Why? Calculate the common size ratios from the statement of profit or lass and other comprehensive income for Awan Biru Bhd, d