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7003 Danish Taj

7003 Danish Taj

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OLD ASIGNMENT ATTEMPTED

Student Name: DANISH TAJ CMI No: 7650 Course Number and Name: 7003 FINANCIAL MANAGEMENT Submission Date: 26/07/2010

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.

Candidate Signature: DANISH TAJ

teams and individuals within the organization. and describes that can be used in evaluating the performance of different Financial business functions. and Provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested There are three key elements to the process of financial managementThey are some key elements which is necessary for ever firm need to be done for long planning for an organization. the key objectives of financial management would be to. its importance towards achieving the organization’s strategic objectives as a whole. Be Able To Assess Budgets Based on Financial Data To Support Organizational Objectives. It points out different factors which influence the firm Financial performance of individuals within the team.CONTENTS Introduction This assignment focuses on the importance of measuring Financial Sources/what is financial Management within an organization.. Create wealth for the business Generate cash.So now we will discuss in this assignment some key elements i. The management of the finances of a business / organization in order to achieve financial objectives Taking a commercial business as the most common organizational structure.e a firm be able to analyse its financial data. Be Able To Evaluate Financial Proposals For Expenditure Submitted By others. It also explains the benefits an organization one of the tools has by implementing an efficient and effective performance management system. It briefs about one of the systems to be used in evaluating .

The answer should comprise of about 700 words. 0 Profitability ratios 1 Liquidity ratios 2 Efficiency ratios 3 Investment ratios 4 The answer should show the formula of the ratio. the figures selected from the financial statements. Be Able To Analyze Financial Data.2 Make comments on the financial health of the organization on the basis of the information obtained in response to 1. 1.1 above. 1. and the ratio so obtained.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. 1. Analyze the financial data by calculating following types of ratios.1 Obtain latest available financial statements of a public company of your choice.Financial performance of the firm/team members and attempts to explain how to deal with underperforming individuals within the organization/team. and contain references to the ratios calculated. .

1 Illustrate by giving your own examples following three methods of evaluating financial proposals: 1 Payback period method 2 Net present value method 3 Internal rate of return method . All operating expenses will increase by 5 percent per year. The answer should present relevant figures from the income statement of the year ended recently and of next three years in a table. 6. 3. The purchase budget will be adjusted to achieve the objectives set in the above mentioned three items of information 5.The answer should comprise of about 300 words Be Able To Assess Budgets Based on Financial Data To Support Organizational Objectives. with each year assigned one column. 2. 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. 2. Dividends paid will also increase by 5% each year 1. ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Be Able To Evaluate Financial Proposals For Expenditure Submitted By Others. 4.1 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. Tax rate will be 30%of the taxable income. 3.

0 298.0 4.0 1.185.0 1.0) 20.Common Issue 2 2.807. Net Total Inventory Prepaid Expenses Other Current Assets.586.895.464.0 1.680.552.0 7.0 7.0 -884.0 22.004.0 -46.0 459. Total Total Current Assets Property/Plant/Equipment.0 3.0 903.0 388.0 26.0 802.0 212.947.783.894.0 17.0 4.801.301.112.0 1.0) 24.0 2.0 30.751.0 64.17 -- .265.0 136.918.059.0 (4. Total – Gross Accumulated Depreciation.0 4. and show 3.036.0 0.155.691. Net Notes Receivable .0 7. The answer should mention external factors which are to be considered in making strategic policies of a business in about 700 words 2009 2009-02-28 Cash Cash & Equivalents Short Term Investments Cash and Short Term Investments Accounts Receivable .0 70.0 5.0 -14.0 320.435.988.799.0 51.0 57.0) ---11.848.511.0 --395.2 Explain which external factors you will keep in mind while assessing impact of the proposal on the strategic objectives.0 -22.807.0 314.0 419.0 8.0 762.704.0 1.Common Stock Primary Issue Shares Outstanding .510.0) 17.0 -440.0 -1.0 147.0 -585.938.137.855.0 1.112.0 7.Short Term Receivables – Other Total Receivables.0 1.511.053. Total Total Equity Total Liabilities & Shareholders' Equity Shares Outs .910.0 -24.0 --395.0 1.841.740. Total – Net Goodwill.0 322.0 412.931.0 5.0 2.0 6.0 128.70 -2007 2007-02-24 902.0 1.506.0 18.829.0 (154.0 20.0 -909.146. of LT Debt/Capital Leases Other Current liabilities.48 -2005 2005-02-26 Restated 2006-02-25 -1.627.0 -5.0 0.504.0 -4.0 535. Total Other Assets.997.0 525.0 20.0 5.35 -2006 2006-02-25 -1.603.Long Term Other Long Term Assets.929.0 (6.0 -20.0 141.164.563.563. Total Total Liabilities Redeemable Preferred Stock.036.0 1.0 480.045.0 --393.0 10.813.395.832.224.0 3.669.0 496.0 -4.146.0) ---12.0 33.0 65.0 4.053.0 4.186.0 (4.047.0 4.137.0 -1.953.0 -3.693. Total Total Current Liabilities Long Term Debt Capital Lease Obligations Total Long Term Debt Total Debt Deferred Income Tax Minority Interest Other Liabilities.0 -13.0 13.019.0 7.0 807.0 --397.164.084.0 5.0 4.0 (5.0 0.Non Redeemable.376.992.0 4.012.0 696.0 1.0 4.0 2.638.309.545.0 4.0 2.0 168.052.0 5.270.0 (4.173.0 1.0 87.155.470.0 24.150.0) 15.0 1.629.921.821.0 1. Net Intangibles.0 -180.445.0 1.693.0 525.0 ----8.0 --389.542.0 46.0 959.0 11.0 48.0 842.0 31.0 443.545.0 -12.245.554.0 -3.115.0 423.0 507.115.0 21.0 12.0 -3.0 2.0 2.0 215. Net Long Term Investments Note Receivable .0 239.0 1.0 -30.0 -791.0 482.325.0 (232.0 -1.911. Total Property/Plant/Equipment.0 276.887.0 8.0 3.0 5.563.466.0 14.168.0 -4.628.0 4.024.0 1.380.0 18.0 -248.0 6.0 1.0 (204.349.0 1.0 1.0 87.0 ----9.0 7.0 3.0 6.0 -703.0 86.086. Total Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Treasury Stock – Common ESOP Debt Guarantee Unrealized Gain (Loss) Other Equity.079.0 4.518.430.0) 16.263.0 806.0 6.388.0 8.0 0.813.0) ---10.124.294.0 1.0 721.0 7.245.647.0 -665. Net Common Stock.0 4.The answer should show assumed figures of the outflow of cash and inflows of cash in future years from the financial proposal.0 1. Total Total Assets Accounts Payable Payable/Accrued Accrued Expenses Notes Payable/Short Term Debt Current Port.Trade.398.152.0 18.563.0 419.646.0 2.183.899.815. Total Preferred Stock .040.277.34 -2008 2008-02-23 1.094.

35 -- --7.bizwiz. having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.855.asp .com/terms/p/profitabilityratios.17 -- http://www.783. http://www.Common Issue 4 Total Common Shares Outstanding Total Preferred Shares Outstanding --7.investopedia.html http://www. For most of these ratios.895. It is a class of financial metrics that are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.70 -- --7.Shares Outstanding .com/finance/stocks/incomeStatement?stmtType=BAL&perType=ANN&symbol=TSCO.ca/profitability_ratio_calculation_formulas/profitability_ratios. Profitability ratios are the financial statement ratios which focus on how well a business is performing in terms of profit.L Profitability ratios The profitability ratios and other ratios are key to understanding financial statements.34 -- --7.48 -- --7.894.947.Common Issue 3 Shares Outstanding .reuters.

com/terms/r/returnonassets. ROA is the return they would receive. This is an important ratio for companies to know the earnings which was generated from invested capital.Gross profit margin ratio = gross profit x 100 Sales = 4218 x 100 54327 = 0.0776 x 100 = 7.764 % Return on Assets Analysis It indicates the profitability of a company relative to its assets.asp Returns on assets Total assets 46053 = net profit before tax = 2954 x 100 x 100 . It also helps in deciding whether or not to initiate a new project. The basis of this ratio is that if a company is going to start a project they expect to earn a return on it. http://www.investopedia.

the benefit (return) of an investment is divided by the cost of the investment. An increasing ROS indicates the company is growing more efficiently.com/terms/r/returnoninvestment. the result is expressed as a percentage or a ratio.0397 x 100 3. http://www. Return on investment is a very popular metric because of its versatility and simplicity. http://www.97% Return on investment A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.com/terms/r/ros. To calculate ROI.investopedia. which is also know as firm’s operating profit margin. while a decreasing ROS could signal looming financial troubles. or if there are other opportunities with a higher ROI.Returns on sales The company’s operational efficiency is evaluated by ROS ratio. That is. if an investment does not have a positive ROI.asp = Net profit Sale = x 100 2161 54327 = = x 100 0.investopedia.asp Return on investment = Net profit before tax x 100 Shareholder equity = 2954 12938 x 100 . then the investment should be not be undertaken.

asp Acid.097 x 100 = 109.com/terms/l/liquidityratios. the larger the margin of safety that the company possesses to cover short-term debts. http://www. the higher the value of the ratio. primarily because the working capital ratio allows for the inclusion of inventory assets.83% Liquidity ratios A class of financial metrics that is used to determine a company's ability to pay off its shortterms debts obligations Generally.asp Acid-Test Ratio A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory The acid-test ratio is far more strenuous than the working capital ratio.= 0.investopedia.com/terms/a/acidtest.investopedia. http://www.2283 x 100 = 22.97% .test ratio = cash + account receivable +short term investment Current liability =2112 +276 +3012 4910 = 1.

you must know the credit terms it offers before determining the quality of its receivables.com/help/whgdata/whnvf33. receivables). and whether the business is overtrading or under trading on its equity (using borrowed funds). While each industry has its own average . In analyzing a business. inventory. how effectively the firm is paying suppliers.investopedia. the more capable the company is of paying its obligations. http://www. they are not always observed by their customers.dnb.7564 75.htm Collection Period Ratio This ratio is helpful in analyzing the collectability of accounts receivable. The higher the current ratio. http://kbr. Although businesses establish credit terms.Current ratio A liquidity ratio measures a company’s ability to pay short-term obligations short-term liabilities (debt and payables) with its short-term assets (cash.asp Current ratio = Current assets Current liability x 100 = 13647 x 100 18040 = = Efficiency ratios 0.64% x 100 Efficiency ratios measure the quality of a business' receivables and how efficiently it uses and controls its assets. or how fast a business can increase its cash supply.com/terms/c/currentratio.

An abnormally high percentage may indicate that a business is not being aggressive enough in its sales efforts.0532 x 365 = 19.854 days Assets to Sales Ratio This ratio rates sales to the total investment that is used to generate those sales.8477 x 100 =84. A low ratio may indicate that a business is selling more than can be safely covered by its assets.collection period (number of days it takes to collect payments from customers). This ratio is calculated using the following formula =Accounts Receivable ÷ Sales x 365 Days =276/54327x365 =1. or that its assets are not being fully utilized. This ratio is calculated using the following formula: Total Assets ÷ Net Sales =46053/ 54327 x 100 =0.44 days .77% Average inventories turnover period =Average inventories held x 365 Cost of sales =2669 x 365 50109 = 0. there are observers who feel that more than 10 to 15 days over terms should be of concern.

34 = 0. constant tax rate Basis.6309 Investment ratios The relationship of gains from investments (including realized capital gains) resulting from insurance operations to earned premiums Earnings per share (EPS) = Profits after paying tax and preference dividends No of ordinary shares issued = 2166/7695. Group sales (inc.0% growth in underlying profit before tax.VAT) growth 14.7% increase in dividend to 11. 12.Sales revenue to capital employed= Sales revenue________________ Share capital + reserves + non-current liabilities = = 54. 9.8% and Group profit before tax growth on a statutory basis .4% rise in Group trading profit • 9.2814 Price Earning Ratio = Price per share Earning per share Financial health of Asda • 10.327 / 7895.96p Sales & profit growth reported on a consistent basis.34+8137+17277 1.7% increase in underlying diluted earnings per share on a 52-week.

and as a result total Group expenditure. an increase of 10. the core business delivered a year of solid progress.7bn (last year £3.2% in the first six weeks. was impacted by the decline in Sterling relative to most of our trading currencies. In competitive market conditions. Plan to fund the growth of the group predominantly from internal sources – recognizing the current uncertainties in financial markets – and this will be achieved by reducing capital expenditure to below our operating cash flow.8%. combined with higher International capital expenditure.9bn). Group capital expenditure (excluding acquisitions) rose to £4. Asda has a strong. For these Preliminary results.4% plus Growth in underlying diluted EPS has been adjusted to reflect a constant tax rate year on year. In the same year.5% to £41.0% and 2.112m). After these costs.0%. with increases of 2.0% on a statutory basis Across the Group Asda have made a good start to the new financial year with total sales up by 9.3%. a contribution of 2.2%.0bn (last year £4. Cash flow from operating activities totaled £5. underlying profit before tax rose by 8. Growth was 7. Furthermore.7%. including no material bond maturities during the current financial year. sales and profit growth is reported on a consistent basis Underlying profit before tax rose to £3.1% from the 53rd week and a first-time contribution from the consolidation of TPF.0%. UK trading profit rose 10. like-for-like sales grew by 3. with sufficient funding in place to meet the needs. On a 52-week comparable basis. with trading margins at 6.1bn). International capital spending. 2.5. slightly up on last year. slightly higher than the forecast made at our Interim Results.9bn).128m in the year (last year £2.5bn (last year £37.843m). including like-for-like growth of 4. including an improvement . property-backed balance sheet.7% in the third and fourth quarters respectively. UK trading profit rose 12. an increase of £35m compared with last year. This increase compared with last year was attributable principally to the purchase of a small number of trading stores from a competitor and investment in new mixed-use development schemes in the UK.7% growth from net new stores. including our initial investment in freehold shopping centre developments in China. On a 52-week comparable basis. Increased productivity and good expense control enabled Asda to maintain solid margins and deliver good profit growth despite these challenges.381m (last year £2.7% to £2. Asda share of profit (net of tax and interest) for the year was £110m. whilst also absorbing initial trading losses totaling around £22m on Asda Direct. UK sales increased by 9. Excluding petrol. including TPF.

109) 4218 2010 65192x1.2bn). So over all Asda is in good position and there are good chances for Asda to grow in future further more. Question 2 2009 Revenue Cost of sales Gross profit 54327x1. It was estimate the current market value of these assets to be £30. Whilst yields have increased modestly in recent months. it was expect to be able to complete further transactions on attractive terms in the months ahead and Asda are currently in discussion with potential counterparties.2bn.9bn of this increase is attributable to the impact of acquiring TPF and However. most of it in freehold store portfolio – even after recent property divestments linked to our £5bn programmed. Proceeds for the remainder of this year will principally be used to pay down debt. £1.of £582m within working capital.20 (50. The net book value of our tangible fixed assets is £24. The transactions completed so far – with pension funds. and a further £1bn to the effect of unfavorable currency movements.05 Unusual Expanses Total operating expanse Operating income 236 51121 3206 1310x1. representing a 23% premium to book value.05 248 61193 3997 1376 260 73275 4955 .20 2011 78230 (60. Net debt rose to £9.7bn. property companies and other investors – have delivered aggregate proceeds of £2.6bn at the year-end (last year £6. driven in part by good control of stock.4bn.133) 5059 (72159) 6071 Selling/general/admin 1248x1.

accountingformanagement.htm Example:1 Year Cash Flow 1 2 3 4 5 22. The company is considering two machines.796 Balance 60. When the net annual cash inflow is the same every year.796 42.000 per year. the following formula can be used to calculate the payback period Formula Payback period = Investment required / Net annual cash inflow http://www.000 17.796 21.796 42.0 1.000 Needed 82.0 ----0. This period is some time refered to as" the time that it takes for an investment to pay for itself." The basic premise of the payback method is that the more quickly the cost of an investment can be recovered. The payback period is the length of time that it takes for a project to recoup its initial cost out of the cash receipts that it generates.1 Total payback period in years ………………………4.000 and will reduce operating cost by £5. the more desirable is the investment.796 21.com/pay_back_method_of_capital_budgeting_decisions.000 per year. The payback period is expressed in years.000 20.Payback period method The payback is another method to evaluate an investment project.796 1.796 60.000 but will also reduce operating costs by £5.000 21. .0 1.0 1.1 Example:2 XYZ Company needs a new shredding machine.796 1.000 18.796 Payback Years 1. The payback method focuses on the payback period. Machine B costs only £12. Machine A costs £15.

the present value of a project's cash inflows is compared to the present value of the project's cash out flows. Net present value method Under the net present value method.000 / £5.826 .716 9.000 18.796) 22.000 = 3. http://www.909 .000 / £5.000 19.621 .513 Present value (82. To illustrate consider the following data.998 14.300 .086 .0 years Machine B payback period = £12.000 .467 Present value = 107. Factor 1.234 12. This net present value determines whether or not the project is an acceptable investment. XYZ Company should purchase machine B.000 20.000 18.V.282 Net Present Value = 24290 8 26.683 . since it has a shorter payback period than machine A.564 .000 17. The difference between the present value of these cash flows is called "the net present value".868 15.accountingformanagement.660 10.771 13.4 years According to payback calculations.com/net_present_value_method.557 10.000 = 2.751 .000 21.796) 19.Calculation Machine A payback period = £15.000 P.htm Example1 Year Cash Flow 0 1 2 3 4 5 6 7 (82.

and it will last for five years. The formula Factor of internal rate of return = Investment required / Net annual cash inflow Example .800 reduction in cost each year over the next five years. It is some time referred to simply as yield on project. the internal rate of return is that discount rate that will cause the net present value of a project to be equal to zero.Example2 Samuel Company is contemplating the purchase of a machine capable of performing certain operations that are now performed manually.000 (5 × £1800). At the end of five-year period the machine will have a zero scrap value. the company can earn a 20% return by investing its money elsewhere.000 can be justified if it will result in an £1. However. It is not enough that the cost reductions cover just the original cost of the machine. this rate is used in the discounting process and is called the discount rate Internal rate of return method The internal rate of return is the rate of return promised by an investment project over its useful life. The machine will cost £5.000. Use of the machine will reduce labor costs by £1. The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash out flow with the present value of its cash inflow In other words.800 per year. It may appear that the answer is obvious since the total cost savings is £9.800 cost savings is discounted to its present value and then compared to the cost of the new machine. the stream of annual £1. Should the machine be purchased? Samuel Company must determine whether a cash investment now of £5. Since Samuel Company requires a minimum return of 20% on all investment projects. To determine whether the investment is desirable. They must also yield at least 20% return or the company would be better off investing the money elsewhere. Samuel Company requires a minimum pretax return of 20% on all investment projects.

000 cash inflows with a present investment of £16. REFRENCES http://www.650 Thus. We can verify this by computing the project's net present value using a 12% discount rate.accountingformanagement. we find that a factor of 5.com/business/financial/business-finance.htm viewed july 2009 .com/net_present_value_method.650 represents a 12% rate of return.com/plc/ir/pres_results/results/r2009/2009-04-21/2009-04-21. the discount factors that will equate a series of £ 3.L viewed 02 July 2009 http://www.pdf viewed july 2009 http://www.The factor derived from formula is then located in the present value tables to see what rate of return it represents.000 = 5. Using formula and the data for school's proposed project.zeromillion.reuters. we get: Investment required / Net annual cash inflow = £16.com/finance/stocks/incomeStatement? stmtType=BAL&perType=ANN&symbol=TSCO.accountingformanagement.Asdaplc.com/use_of_internal_rate_of_return_m.html http://www.950 / £3.htm viewed 30 June 2009 http://www. I we scan along the 10-period line. We would use the 10-period line in the table since the cash flows for the project continue for 10 years.950. Now we need to find this factor in the table to see what rate of return it represents.

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