Question 1.
1.1 Obtain latest available financial statements of a public company of your choice. Analyse the financial data by calculating following types of ratios;
- Profitability ratios
- Liquidity ratios
- Efficiency ratios
- Investment ratios
The answer should show the formula of the ratio, the figures selected from the financial statements, and the ratio so obtained.
1.2 Make comments on the financial health of the organization on the basis of the information obtained in response to 1.1 above.
The answer should comprise of about 700 words, and contain references to the ratios calculated.
1.3 Do you think the financial statements have been based on financial data gathered according to generally accepted principles? Comment by citing some of the figures.
The answer should comprise of about 300 words
LO.2 Be able to assess budgets based on financial data to support organizational objectives.
Question 2.
2.1 On the basis of following expected achievements and constraints prepare budgeted income statements for next three accounting years of the company you have chosen for question 1.
- Sale revenue will increase by 20% each year
- Closing inventory will be increased by 5% each year
- Gross profit ratio will remain the same over these years.
- The purchase budget will be adjusted to achieve the objectives set in the above mentioned three items of information
- All operating expenses will increase by 5 percent per year.
- Tax rate will be 30%of the taxable income.
- Dividends paid will also increase by 5% each year
The answer should present relevant figures from the income statement of the year ended recently and of next three years in a table, with each year assigned one column.
LO.3 Be able to evaluate financial proposals for expenditure submitted by others.
Question 3
3.1 Illustrate by giving your own examples following three methods of evaluating financial proposals:
- Payback period method
- Net present value method
- Internal rate of return method
The answer should show assumed figures of the outflow of cash and inflows of cash in future years from the financial proposal, and show
3.2 Explain which external factors you will keep in mind while assessing impact of the proposal on the strategic objectives.
The answer should mention external factors which are to be considered in making strategic policies of a business in about 700 words
NUMBER OF WORDS: 2000 APPROX
TUTOR’S NAME: MR.R GANAI
Plagiarism Statement: I declare that, apart from properly referenced quotations, this assignment/report is my own work and contains no plagiarism; it has not been submitted previously for any other assessed unit on this or other courses.
Introduction:
This written report has represented on the basis of ratios analysis addressing last year & the present year of the companies. Ratio analysis has been applied in this report is based on the figuring shown in the appendix.
B.Petroleum.
Sales for this company have been increased with 5.12 ratios, last year and this year the operating percentage of sales is 20% as compare to last year it is same this year as well, this demonstrates the company’s constancy throughout the last some years. ROCE is reduced from 21 to 18 this year. It’s demonstrating the sales event per British pound of asset is reduced, hence the present year assets have not equaled used expeditiously.
The present ratio calculates a company’s strength to come up with its current liabilities out of the present assets. a ratio of minimum 2:1 rate is expected. The company’s present ratio is more nevertheless better than the previous year, so it can be said that this year the company has utilized in proper way.
Gearing ratio is going up in the current year as compare to the last year, which is taking to marginal risk of settlement as the dimension of the long term indebtednesses to capital utilized is being going up, so the company need to pay more interest as undertaking more outside assets, this will lead to bring down the profit and bringing share holders investments at risk. Though this company does not shows any sign of gearing to the high level.
Interest cover ratio has come down as comparing to the previous year, which builds the company pay less as interest.
Interest cover ratio is reduced as compare to the previous year, as the company earning less interest cover in long term. The company is adequate to disburse interest on long term indebtednesses if the company’s profit is reduced. Dividend cover ratio is also reduced throughout this year which laying less chances of acquiring bonus to the share holders whenever the net income falls.
Quick ratio is becoming better which demonstrates that the company is more capable pay off its current indebtednesses out of its current assets nevertheless the earnings per share is falling a bit.
No-Fat Limited
Sales of the No-Fat Limited are also heightened with a little balance. Compare to the previous year the operating profit ratio is also the same, the net profit ratio is reduced from 28% to 20% compare to last year and this show the disbursements are raised this year.
The company is extremely pitched as its applying a high balance of international capital, which brings more chances of the settlement of the company.
The earning per share is reduced, which demonstrates that the company’s fixed charge is raised throughout the present year.
Quick ratio is also reduced, bringing the company less capable to congregate its current liabilities rapidly.
Decreasing net profit is also inducing the share holders to acquire less bonus and low interest to pay off for its long term indebtednesses, such things can place the company run in risk.
The assets of the company have not been used very well, which lead in falling ROCE ratio of the company this year.
B. Petroleum. (company 1)
Current year
Current Ratio:
Current Assets /Current Liabilities
(3999.99 + 8999.99 + 4999.99) / 14999.99 = 1.2%.
Opt – profit ratios:
Profit before tax and interest/sales
8189.99 / 40599.99 = 0.20%
Net – profit ratios.
Profit after interest and tax / sales
8189.99 – 2439.99 = 5751.99.
5751.99 – 275.99 = 5474.99 / 40499.99
5474.99 / 40499.99 = 0.12 %.
Gearing – ratios
External-liabilities / total-capital employed
2299.99 + 599.99 = 2899.98.
2899.98 / 5999.99 + 36199.99 + 2299.99 + 599.99 = 6.4%
Earning – per – share
Profit after-tax / total number of shares
(8099.99 -275.99 – 2429.99) / 36199.99 = 13.9%
Interest – cover – ratios
Opt. profit / total interest in the year
8099.99 / 275.99 = 29.3 t
Dividend – cover – ratios
Net-profit / dividend paid in the year
5393.99 / (36199.99 x 7) = 1.04 t.
5393.99 / 2533.99 = 2.11 t.
Return on capital employed:
Opt. profit / Total capital employed
8099.99 / (36199.99 + 599.99 + 5999.99) = 0.19%
Quick-acid ratios
Current assets without stock / current liabilities = (debtors + cash) / c. liabilities
(8999.99 + 3999.99) / 14999.99 = 0.85%
Previous-year
Current Ratios
Currant Assets / Current Liabilities
(2999.99 + 6999.99 + 4999.99) / 13999.99 = 1.06%
Operating-profit ratios
Profit before tax and interest / sales
7704.99 / 38524.99 = 0.19%
Net – profit ratios
Profit after-interest & tax / sales
(7704.99 – 179.99 – 2310.99) / 38524.99 = 13.6%
Gearing-ratios
Ext. liabilities / total capital employed
599.99 / (4499.99 + 599.99 + 30499.99) = 1.70%
Interest – cover ratios
Opt. profit / total interest in the year
7704.99 / 179.99 = 43.80 t
Dividend-cover ratios
Net-profit / dividend paid in the year
(179.99 – 7704.99 – 2310.99) / 30499.99 x .8 = 5213.99 / 24399.99 = 22t
Earning per – shares
Profit after – tax / total numbers of shares
5213.99 / 30499.99 = 0.16%
Return on capital-employed
Opt. profit / total capital employed
7704.99 / 35599.99 = 0.20%
Quick-acid ratios
Current assets without stock / current liabilities = (debtors + cash) / current liabilities
(5999.99 + 2999.99) / 13999.99 = 0.63 %
Company 2:No-Fat Limited
Current year
Current-Ratios
Currant Assets / Current Liabilities
(149999.99 + 14999.99 + 729999.99) / 349999.99 = 2.54%
Opt. profit ratios
Profit before tax & interest / sales
144374.99 / 412499.99 = 35%
Net – profit ratios
Profit after interest and tax / sales
(144374.99 – 61999.99) / 412499.99 = 20%
Gearing ratios
Ext. long-term liabilities / total capital employed
(149999.99 + 249999.99 + 199999.99) / (149999.99 + 249999.99 + 199999.99 + 19999.99 + 89.999.99) = 599999.99 / 709999.99 = 84%
= 84%
Interest cover ratios
Opt. profit / total interest during the year
144374.99 / 61999.99 = 2.32 t
Dividends cover ratios
Net-profit / dividend paid during the year
82374.99 / 26999.99 = 3.04t
Earning per shares
Profit after tax / total numbers of shares
82374.99 / 179999.99 = 0.45%
Quick acid ratios
Current assets without stock / current liabilities = (debtors + cash) / c. liabilities
(149999.99 + 14999.99) / 349999.99 = 0.46%
Return on capital – employed
Opt. profit / total capital employed
144374.99 / 709999.99 = 20%
Previous year
Current Ratios
Currant Assets / Current Liabilities
(383999.99 + 89999.99 + 15999.99) / 199999.99 = 2.46%
Operating – profit ratios
Profit before tax and interest / sales
125542.99 / 358694.99 = 34%
Net – profit ratios
Profit after interest and tax / sales
(125542-24999.99) / 358694.99 = 27%
Gearing-ratios
Ext. long-term liabilities / total capital employed
(149999.99 + 129999.99) / (129999.99 + 89999.99 + 999999.99 + 149999.99) = 280000
= 280000 / 470000 = 59%
Interest – cover ratios
Opt. profit / total interest in the year
125542.99 / 24999.99 = 5 t
Dividend cover ratios
Net profit / dividend paid in the year
125542.99 / 17999.99 = 6.98 times
Quick acid ratios
Current assets without stock / current liabilities = (debtors+ cash) /c. liabilities
(89999.99 + 15999.99) / 199999.99 = 54%
Return on capital – employed
Opt. profit / total capital employed
125542.99 / 469999.99 = 25%
Earning – per shares
Profit after tax / total numbers of shares
100542.99 / 179999.99 = 55p
Petroleum (company 1)
Current year previous year
Asset Turnover = 32400 =.058 30820 =0.77
47500
Acid Test Ratio = 18000-5000 = 0.8:1 15000-6000 = 0.5:1
15000 14000
Operating Profit Margin = 25% (given) 25% given
Current Ratio = 18000 =1.2:1 15000 1.06:1
15000 14000
ROCE = 8100 x 100 = 16.03% 7705 x 100 = 19.55%
44800 + 3000 38000 + 1000
Debtors Collection Period= 9000 x 365 = 101 days 6000 x 365 = 71 Days
32400 30820
No-Fat Limited. Company 2
Ratio Comparison between both companies
British petroleum |
No-Fat Limited |
|||
Previous Year |
This year |
Previous Year |
This Year |
|
Current ratios. |
1.07 |
1.2 |
2.45 |
2.56 |
Operating Profit ratios. |
20 % |
20 % |
35 % |
35 % |
Net profits. |
13.5 % |
13 % |
28 % |
20 % |
Gearing ratios. |
1.69 |
6.4 |
59 % |
84 % |
Earning Per shares. |
17 p |
15 p |
55 p |
45 p |
InterestCover ratios. |
43 times |
29 times |
5 times |
2.32 times |
Dividend Covers ratios. |
2.1 times |
2.12 times |
6.97 times |
2.75 times |
Quick Acid ratios. |
64 % |
86 % |
53 % |
50 % |
ROCE. |
21 % |
18 % |
26 % |
20 % |
Conclusion;
To be a potential investor the age, status and overall situation is not considered as they look for the growth and dividends to cover the expenses as he is a student. And it could be suggested that British Petroleum is the better option to go with for him.
Comparing to No-Fat Limited British Petroleum can be considered as a stable in financial ways as it is matured and Profit making company.
Taking into consideration the No-Fat Limited is suffering from several drawbacks as it is making less profits , where as there is increase in fixed expenses which may lead to no or less payment of interest in its long term liabilities and its prone to liquidation. Hence it can be said that it would not be a worth to invest in it, because of high gearing ratios of a company may get the investor into loss.