FACULTY BUSINESS AND ACCOUNTANCY

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PFS 1313

PRINCIPLES OF FINANCE

Assignment 1

(Dutch Baby)

Name: Nur Farina Umairah Binti Jaafar

Matric no. :4191005271

Submission date: 18 May 2021

QUESTION

The summarized financial statements of Dutch Baby Berhad for the period ended 31
December 2015 were as follows:

Dutch Baby Berhad

Income Statement for the year ended 31 December 2015
RM RM
Sales 1,001,660
(-) Cost of Goods Sold (580,950)
Gross Profit 420,710
(-) Operating Expenses
Distribution Expenses 191,900
General & Administrative Expenses 24,330
Depreciation 16,000 (232,230)
Earnings Before Interest & Taxes (EBIT) 188,480
(-) Interest Expenses (36,000)
Earnings Before Taxes (EBT) 152,480
(-) Taxes Expenses (47,700)
Net Income 104,780

Dutch Baby Berhad

Balance Sheet as at 31 December 2015
RM RM
Non-Current Assets Non-Current Liabilities
Property & Equipment 120,000 Long-term Loan 131,135
(-) Acc. Depreciation (29,070)
Intangible Assets 5,000 Current Liabilities
Account Payables 116,650
Current Tax Liabilities 7,520
Non-current Assets 95,930 Total Liabilities 255,305

Current Assets: Equity

Inventories 99,075 Common Shares 64,000
Account Receivables 55,170 Retained Earnings 93,220
Cash 162,350
Current Assets 316,595 Total Equity 157,220
Total Assets 412,525 Total Equity & Liabilities 412,525
Required:

Based on the information provided, calculate the following ratio for Dutch Baby Berhad and
briefly comment with reasonable argument on the comparison to industry average below.

i. Operating Profit Margin

Profit margin: Net income / sales

: 104,780 / 1,001,660 x 100

: 10.46 %

Operating margin: EBIT / sales

: 188,480/1,001,660 x 100
: 18.881%

2015 ind.

Profit margin 10.46% 15.0%

Operating margin 18.881 % 15.0%

• Profit margin was very bad because remain below the industry average

• Operating margin good on the industry average

ii. Average Collection Period

DSO: Receivable / Avg sales per day

: Receivable / (Annual Sales /365)
: 55,170 / (1,001,660 / 365)
: 55,170 / 2.744
: 20.10 days

2015 ind.

DSO 20.10 days 30 days

• Dutch Baby collect on sales are quick rather than industries

iii. Inventory Turnover
: Sales / inventory
: 1,001,660 / 99,075
: 10.11x

2015 ind.

Inventory turnover 10.11x 5 times

• Inventory turnover for Dutch Baby is good rather than industry average

iv. Current Ratio

: current asset / current liabilities (account payable + current tax liabilities)
: 316,595 / 124,170
: 2.55x

2015 ind.

Current ratio 2.55x 1.80 times

• Over the industries average

• Liquidity position is strong

v. Times Interest Earned

: EBIT/ Interest
: 188,480/36,000
: 5.24x

2015 ind.

Times Interest Earned 5.24x 12 times

• Times interest earned are worse than industries average

(10 marks)