Assignment # 1

Spring-2021

Due Date: June 08, 2021 MARKS: 15

Teacher’s Message:

Dear Student,

Here is your Assignment for the course of FIN630. It will provide you an opportunity to get
yourself prepared for your final-term exam. Before comprehending and attempting the assignment,
we would like you to note some of the following important points:
 This assignment has been designed to enhance your knowledge so it is advisable to put your
genuine efforts towards its attempt. Carefully watch relevant lectures and consult the
relevant material from handouts along with recommended books. You may, however,
consult multiple study resources but the solution should be prepared wholly and solely by
you.
 Always remember that copied/cheated solutions not only earn you zero marks but also spoil
your knowledge. So, keep yourself at a safe distance from ready-made and substandard
solutions.
 Read the assignment requirements carefully and follow the provided guidelines in their true
letter and spirit. Believe it that you are capable enough to do it by yourself so just give it a try.
 Before starting your attempt, you are also advised to read the solution guidelines and all other
instructions provided at the end of the assignment.

Happy Learning!!!

LEARNING OBJECTIVES:
After attempting this assignment, the students would be able to:
 understand the Ratio analysis and how the decision will be made on the basis of the results
generating from Ratio analysis
 calculate and interpret the results of Interest Coverage Ratio
 understand how a company may be considered good by a creditor on the basis of its
riskiness.
Question:

Ratio analysis is one of the most important financial tools, which indicates the trend or comparison
of financial results that can be helpful for decision making in the business. One of the core elements
of ratio analysis is that it helps in identifying the financial risks by calculating the leverage ratios,
which indicate how an organization is dependent on external capital and whether it would be
capable of repaying the debt using their capital. There are two companies, RTW and SPF, who have
applied for loan in ABC Bank. The bank wants to analyze the financial riskiness of both companies
as it can accommodate only one of them. Following are some details regarding the said companies:

RTW Company SPF Company

Particulars
(Rs.) (Rs.)
Net Profit 200,000 250,000
Admin Expenses 80,000 50,000
Interest Expenses 50,000 40,000
Tax Expenses 40,000 30,000

Requirements:
1. Calculate the Interest Coverage Ratio of RTW Company and Interpret
the resulting figure. (6 marks)
2. Calculate the Interest Coverage Ratio of SPF Company and Interpret
the resulting figure. (6 marks)
3. Based on the above calculations, identify which particular company
may be considered better by ABC Bank as far as the riskiness is considered?
Support your answer with conceptual rationale. (3 marks)

NOTE: You are required to provide complete calculations (working) in part (1) and (2) with each
and every step, formula, resulting figures with proper units and to-the point interpretation. In
part (3), you are required to provide to-the-point justification for the identification. Unnecessary
and irrelevant details won’t get any marks.
Please read the following instructions carefully before preparing the assignment solution:
 Copy or reproduction of material is strictly prohibited. You may consult multiple sources for
knowledge and understanding but the assignment should be composed in your own words.
 Your attempt must be to-the-point and according to the requirement.
 Put your genuine efforts in order to understand the concepts thoroughly.
 Provide complete working or calculations in each case otherwise you will lose marks.
 Irrelevant details are not required

24 hours extra/grace period after the due date is usually available to overcome uploading
difficulties. This extra time should only be used to meet the emergencies and above mentioned due
dates should always be treated as final to avoid any inconvenience.

DEADLINE:

 Make sure to upload the solution file before the due date on VULMS.
 Any submission made via email after the due date will not be accepted.

FORMATTING GUIDELINES:

 Use the font style “Times New Roman”, “Arial” or “Garamond” and font size “12”.
 It is advised to compose your document only in MS-Word format.
 You may also compose your assignment in Open Office format.
 Use black and blue font colors only.

RULES FOR MARKING

Please note that your assignment will be marked or marked as Zero (0), if:
 Plagiarism is found more than 20% because university is following Zero Tolerance
Policy for plagiarism. In case of copied solution, plagiarism report will be attached with the
assignment solution files in order to provide exact results of copied data.
 It is submitted after the due date.
 The uploaded solution file does not open or is corrupt.
 It is in any format other than MS-Word or Open Office e.g. Excel, PowerPoint, PDF etc.
 It is cheated or copied from other students, internet, books, journals etc.

------------------------< BEST OF LUCK >------------------------