SINGAPORE POLYTECHNIC

SCHOOL OF BUSINESS
Semester 2 (2022/2023)
Week 5

Tutorial 5 – Financial Analysis

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Question 1

A company has just completed its first year of business with the following information.

Transactions during the year $

Cash paid to suppliers 100,000
Cash paid to employees 80,000
Depreciation expense incurred for the year 20,000
Interest paid on bank overdraft 500
Income taxes paid 9,500
Cash received from customers 200,000
Cash paid for purchase of plant and equipment 75,000
Gain from disposal of equipment 20,000
Cash received from sale of property 45,000
Interest received on fixed deposit 5,000
Cash received from sale of shares in other companies 20,000
Issue of bonus share dividends 350,000
Cash received from issue of new ordinary shares 150,000
Cash received for long term bank loan 200,000
Cash paid for repayment of long term bank loan 150,000
Cash dividends paid to shareholders 80,000

Required:

Calculate the net cash flow for each of the activities:

• Operating activities
• Investing activities
• Financing activities

Question 2

A company has the following information:

$
Operating expenses incurred for the year 300,000
Prepaid expenses at the beginning of the year 30,000
Prepaid expenses at the end of the year 30,000
Accrued expenses at the beginning of the year 50,000
Accrued expenses at the end of the year 40,000
Additional information:

Operating expenses included depreciating expense of $25,000 and loss on disposal of fixed
assets $15,000.

Required:
Calculate the cash paid during the year relating to operating expenses.

Question 3

A company Ltd has the following balances for the year 2018

Account balances 1 Jan 18 31 Dec 18

$ $
Inventories 150,000 180,000
Trade and other receivables 120,000 100,000
Prepayments 60,000 40,000
Trade and other payables 25,000 55,000
Accruals 30,000 40,000

Additional information

• The net cash from operating activities for the year is $250,000
• Taxes and interests paid during the year were $20,000 and $30,000 respectively. Interest
paid during the year is also the finance charge for the year.
• Depreciation expense for the year was $40,000 and the company made a gain of $10,000
on disposal of non-current assets.

Required:

Calculate the profit before tax for the year.

Question 4

A company has the following ratios for 2 financial years

Ratios 2017 2018

Net Profit Ratio 15% 20%
Return On Shareholders’ Equity 20% 17%
Quick Ratio 1.5 2.0
Accounts Receivables Turnover 12 times 15 times
Times interest earned 10 times 12 times

Required:

For each ratio,

• identify its type (e.g. profitability, liquidity, solvency etc)

• explain its meaning using the 2018 figures
• compare the 2 years’ figures and explain whether company’s ratio has improved

Question 5

A company has 20 million ordinary shares at the beginning of the year on 1 January 2018. On 1 July
2018, it issued 10 million new ordinary shares at full market price. The company earns a profit of
$50 million for the year ended 31 December 2018.
Required:

Calculate the EPS for the year 2018.

Question 6

On 1 January 2018 Bag Ltd had in issue 10 million ordinary shares. On 30 June 2018 Bag Ltd
made a 1 for 4 rights issue at $2.40 per share. At that date the market price of the share before the
rights issue was announced was $3.20 per share. The earnings of the company was $4.8m for
2018. For the year ended 2017, the company made a profit of $4m and the no new shares were
issued during the year.

Required:

Calculate the following:

• EPS for 2017 published in 2017 financial statements

• EPS for 2018 published in 2018 financial statements
• Restated 2017 EPS published as comparative figures in 2018 financial statements