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Basic Financial Statements

XYZ Ltd. began operations in 2013 with an initial capitalization of INR 1.5 million and secured a loan of INR 12,00,000. The company projects sales growth and has outlined its financial policies, including credit terms and dividend distribution based on net margins. A financial analysis will be conducted to calculate the Break-Even Point and evaluate the company's efficiency and profitability through various financial ratios.

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17 views1 page

Basic Financial Statements

XYZ Ltd. began operations in 2013 with an initial capitalization of INR 1.5 million and secured a loan of INR 12,00,000. The company projects sales growth and has outlined its financial policies, including credit terms and dividend distribution based on net margins. A financial analysis will be conducted to calculate the Break-Even Point and evaluate the company's efficiency and profitability through various financial ratios.

Uploaded by

jhalak.goyal.pgdm25
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Title: Financial Analysis and Performance Assessment of XYZ Ltd.

Background:
XYZ Ltd. commenced its operations on April 1, 2013, with a focus on manufacturing Product
A. The company's initial capitalization included an authorized capital of INR 1.5 million, with
150,000 shares priced at INR 10 each. The four promoters contributed INR 400,000 each,
resulting in the issuance of 20,000 shares to each promoter. Additionally, XYZ Ltd. secured a
loan of INR 12,00,000 from the State Bank at an interest rate of 14% per annum, effective from
April 1, 2013. The loan terms stipulate that the interest rate will increase to 16% if the interest
coverage ratio falls below 8.50x. The company has been exempted from making any debt
payments in its first year of operations, with a repayment requirement of at least 20% of the
outstanding debt starting from the second year.

Investments and Operations:


XYZ Ltd. invested INR 21,00,000 in purchasing two machines on the second day of 2013. The
annual capital expenditure (capex) is estimated to be INR 100,000 for the second and third
years and INR 120,000 for the fourth and fifth years. Depreciation is calculated at 12% of the
yearly written down value.

Sales and Expenses:


The company anticipates achieving a capacity utilization ratio of 50% in the first year, with
corresponding figures of 52%, 54%, 55%, and 56% in the subsequent years. Sales projections
indicate that 72%, 74%, 76%, 78%, and 80% of the total available units will be sold in years 1
through 5, respectively. The selling price per unit of Product A is set at INR 125, with an
expected growth rate of 6%. Raw material costs amount to INR 45 per unit, while labor
expenses stand at INR 20 per unit, with anticipated growth rates of 4% and 10%, respectively.
Yearly indirect expenses, including rent, salaries, and office expenses, are estimated to be INR
11,60,000.

Financial Policies:
XYZ Ltd. extends credit to customers, expecting to recover receipts from debtors within 35
days in the first year, decreasing to 31 days by the fifth year. The company takes approximately
60 days to settle payments to creditors. Dividends to shareholders are planned at 30% in any
year where the net margin exceeds 10%.

Other Financial Considerations:


Selling, general, and administrative expenses (SG&A) are projected to grow by 15% in years 2
and 3 and by 12% in years 4 and 5. The tax rate is set at 30%. The creditor days are expected
to reduce to 55 in year 4 and 50 in year 5. Outstanding expenses are accounted for 1.25
months. Debt repayment is scheduled at 25% in years 3 and 4, increasing to 33% in year 5.

Financial Analysis and Performance Assessment:


Based on the provided data, we will calculate the Break-Even Point (BEP) of XYZ Ltd. and assess
its efficiency and profitability by computing various financial ratios.

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