Institute of Business Management

LMS Based Online Assessment

Course Title: Theory & Practice of Financial Management Course Code:

Faculty: Faraz Naseem Section:
Day / Date: Sunday, April 19th, 2020 Timings:
Total Marks:

Student’s Name: Muhammad Haris Bin Riaz Student ID:

Rename the Excel sheet with your name and ID number
All questions need to be attempted on the Excel sheet in the designated space
The Rubrics of the assignment are shared on LMS
FIN 408
W-5926
9:00 AM
15

20191-25475
 QUESTION 2 (8 marks)

You have been hired as an analyst for a Bank and your team is working on an independent assessment of a company that h
Your assistant has provided you with the following data (ratios) of the company’s financial performance over the past three y

2016 2017 2018

Current 2.3 1.5 2.6

Quick 0.8 0.5 0.9
Average Collection Period 37.4 39.5 45.5
Inventory Turnover 4 4 3.5
Fixed Assets Turnover 10 6.2 8.4
Total Assets Turnover 2.3 2 2
Debt to Total Assets 54.80% 80.70% 43.80%
Interest Coverage 3.3 0.1 6.3
Net Profit Margin 2.60% -1.60% 3.60%
Return on Assets 6.00% -3.30% 7.20%
Return on Equity 13.30% -17.10% 12.80%
Price/Earnings (P/E) 9.7 -6.3 12

Using the information provided, you are required to analyze the company’s financial condition and performance over the last

a)       What can you say about the liquidity position of the company and its ability to meet short term obligations?
b)       Analyze the company’s asset utilization/turnover ratio(s)?
c)       Evaluate the company’s leverage and profitability position?
d)       How would you perceive the overall performance of the company in terms of a lenders perspective?

a.

Current Assets are fluctauting over the years but greater than 1 means that it has enough total current assets to p
off it lenders incase of liquidation but it is still lower than the industry averages same goes for the quick ratios as th
are also fluctuating over the years but lower than 1 means that company has lower most liquid assets to pay off t
lenders and it is lower than industry averages, weaker postion than the industry, since there is a huge gap between
current ratios and the acid test ratio which furthur indicates that company has inventory pile up issue , lot of work
capital is freezed in the form of inventory, moreover over the year average collection periods are increasing over t
years meaning that recievable turnover are decreasing over the year again showing that recievables are not getti
materialized, company is facing issues to get the recivables from the customers, moreover inventory turnover rem
constant in the next year but fell back in the last year so overall inventory turnover is lower than the industry aver
that furthur showed the inventory are not converting into sales to get the revenue so overall company has liquid
issue and it is not in better position

b.
c.

d.
essment of a company that has applied to avail financing facilities.
mance over the past three years and the industry averages:

Industry Averages

2.7
1
32
6.1
7
2.5
50.00%
6.2
3.60%
9.00%
17.90%
16.2

nd performance over the last three years against the industry averages by answering the following questions:

rm obligations?

gh total current assets to pay

es for the quick ratios as they
st liquid assets to pay off the
ere is a huge gap between the
y pile up issue , lot of working
eriods are increasing over the
at recievables are not getting
ver inventory turnover remain
wer than the industry average
overall company has liquidy
QUESTION 2 (5 marks)

A Company is planning to increase its level of sales from 15 million to 20 million in 2020 i.e. an increase of 33%.
The company considers all of its assets and non-financing current liabilities to be directly related to the level of
sales. Following is the balance sheet extract as on 31st Dec 2019:

Assets Liabilities & Equity

Cash & cash equivalents 500,000 Accounts payable
Prepaid expenses 250,000 Salaries payable
Short term investment 1,000,000 Rent payable
Receivables 750,000 Short term bank loan
Inventories 500,000 Total Current Liabilities
Total Current Assets 3,000,000 Bonds payable
Net Fixed Assets 5,000,000 Common stock
Retained earnings
Total Assets 8,000,000 Total Liabilities and Shareholders’ Equity

The expected net profit margin on sales is 7.55% and the company has a dividend payout ratio of 30%.
a)       To achieve the target sales of 20 million, calculate the Additional Financing Needed using the formula assuming 100 %
b)       Reconstruct the balance sheet for 2020 choosing at least two financing option(s) available to fulfil the financing amount
c) Justify your choice to part (b) (Hint: considering that you now have two years of financial information you can calculate a
an increase of 33%.
ated to the level of

700,000 Income Stat Actual Forecasted

100,000 Sales 1500000 2000000
200,000 CGS
1,000,000 GP
2,000,000 SGA
2,000,000 EBIT
2,875,000 Interest
1,125,000 EBT
8,000,000 Taxes
Net Income 113250 151000
Dividents 33975 45300
ng the formula assuming 100 % utilization of total assets. Retained Ear 79275 105700
ble to fulfil the financing amount identified in part (a)
information you can calculate a few key ratios to supplement your answer.)

Bala
Assets
Cash
A/R
Inventories
Total CA
Net Fixed Assets
pre expense

Total Assets
Sales increase 5000000 33.00%
Assets Liability RE AFN
AFN Formula 26666666.667 2333333.33333333 105700 24227633.3333

Net Profit Margin 7.55%

Divident Payout 30%

1.33

Balance Sheet
actual forecasted Liabilities & Equity actual forecasted
500000 665000.00 A/p 700000 931000.00
750000 997500.00 R/P 200000 200000.00
500000 665000.00 S/p 100000 100000.00
3000000 3990000.00 Short loan 1000000 1000000.00
5000000 6650000.00 Total Cl 2000000 2231000.00
250000 332500.00 B/p 2000000 2000000.00
CS 2875000 2875000.00
RE 1125000 1230700.00
8000000 10640000.00 Total L & Equity 8000000 8336700.00
2303300.00
 Question 3 (2 mark)
a. A company reported 3 Million Net Income while its EBIT was 6 Million and tax rate was 40%. You are required to calculate th
b. What is the significance for the calculation of this ratio while evaluating a company's financial performance ?
. You are required to calculate the times interest earned ratio?
l performance ?