MAF253 Solution Tutorial Ratio Analysis (Dec2018 )

Financial Management (MAF253)

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TUTORIAL MAF253 – RATIO ANALYSIS

DEC2018

a. Calculate the following ratios.

2018 (RM)
Net Profit Margin NIATCS 1,900,000 x 100% = 9.69%
Sales 19,600,000

Return On Assets NIATCS 1,900,000 x 100% = 18.49%

TA 10,276,000

Debt Ratio TD 1,968,000+1,750,000 x 100% = 36.18%

TA 10,2760,000

Time Interest Earned EBIT 2,500,000+360,000 = 7.94 times

I 360,000

Average Collection AR 960,000 x 360 = 23.51 days

Period SALES/360 (19,600,000 x 75%)

Inventory Turnover COGS 14,700,000 = 6.125 times

AVCLS 2,400,000

Total Assets Turnover SALES 19,600,000 = 1.90 times

TA 10,276,000
P/E Ratio CMP 4.00 = 20 times
EPS 0.20

Dividend Payout Ratio DPS (1,080,000/5,500,000) x 100% = 98.18%

EPS 0.20

ROE (Du Pont Analysis) NPM X TAT 9.69 x 1.90 = 28.85%

(1- Debt Ratio) @ (1-0.3618)
ROA /(1- Debt Ratio) Or
18.49 = 28.97%
(1-0.3618)

b. P/E ratio is one of the important ratios for the investors. Explain on the followings:
Importance:
 It enables to firm to establish whether the stock is overvalued or undervalued.
 It measures the investors’ confidence in the firm’s future prospects.
 It is used to measure the growth potential of a company or to assess the investors’
perception of the company.
 If the investors forecast the company’s future growth and profitability is good, they
will be prepared to pay a higher price for the company’s share even though current
earnings per share are lower compared with other companies.

Or any other acceptable answers

Meaning of high P/E ratio
 High P/E ratio indicates that the share market considers the company to have more
potential and/or is a less risky investment.
 It means that the investors are anticipating higher growth in the future.

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