QUESTION 1

Below is the partial income statement of Kapas Berhad for the year ended 31
December 2014 and 2015.

2014 (RM) 2015 (RM)

Net sales 1,800,000 2,450,000
Gross profit 1,297,000 1,670,000
Earnings before interest and tax 902,000 1,126,000
Earnings before tax 862,000 1,064,000
Net income 646,500 798,000

Using common-size analysis, provide a brief report on the company operating

activities for the financial year ended 2015. Determine the company strengths and
weaknesses and suggest possible strategies to improve future performances.

QUESTION 2
Below are selected financial information of Smarto Bhd for the financial year ending
31 December.
2016 2015 2014
(RM million) (RM million) (RM million)
Shareholders' equity 6.73 6.08 5.18
Long Term Debt 7.25 7.1 7.85
Total Current Liabilities 9.55 9.34 10.39
Total Current Assets 8.4 8.22 9.12
Total Net Fixed Assets 13.63 12.8 12.8
Net Sales 13.5 14.7 15

a) Prepare a year-to-year comparative analysis.

(6 marks)
b) Evaluate the company’s asset utilization and the financial risk for the year
2015 and 2016. Support your evaluation with relevant financial ratios.
(4 mark)
QUESTION 3

The following Statement of Financial Performance apply to Bentayan Berhad:

Comparative Statement of Financial Performance for the years ended
December 31, (‘000)
2017 (RM) 2016 (RM) 2015 (RM)
Sales 2,900 2,700 1,800
Cost of sales 1,800 1,778 950
Gross profit 1,100 922 850
Operating expenses 680 470 330
Operating profit 420 452 520
Interest expense 250 180 72
Income before tax 170 272 448
Income taxes 48 77 125
Net income 122 195 323

Based on the above financial statement, you are required to:

a) Prepare a Trend Index Statement of Financial Performance by using 2015 as the

base year.

(4 marks)

b) From a), critically analyse the company’s performance for the past 3 years.
(6 marks)
ANSWER
QUESTION 1
Kapas Berhad
Common size income statement for the year ended 31 December
2014 (%) 2015 (%)
Net sales 100 100
Gross profit 72.06 68.16
Earnings before interest and tax 50.11 45.96
Earnings before tax 47.89 43.43
Net income 35.92 32.57

(20√ x 0.25m = 5 marks)

Although the company is still gaining profit, the percentage of the NPM is
slightly decreased in 2015 compared to 2014. In 2015, it seems that the
company is less efficient in handling their costs. The COGS, selling and
administration costs and interest expenses are slightly increasing. To improve
future performance the company should manage the operational costs
efficiently and the company should lower the COGS by buying in bulk quantity
or looking for other suppliers that able to provide cheaper raw materials.
(5√ x 1m = 5 marks)

QUESTION 2
a) Year-to-year Comparative Analysis

2016 (%) 2015(%)

Shareholders' equity 10.69√ 17.4 √
Long Term Debt 2.11 √ -9.6 √
Total Current Liabilities 2.25 √ -10.1 √
Total Current Assets 2.19 √ -9.9 √
Total Net Fixed Assets 6.48 √ 0√
Net Sales -8.16 √ -2.0 √
√12 x 0.25 mark = 3 marks)

b (ii) Evaluation on Asset Utilization and Financial Risk

Asset Utilization
The company efficiency in asset utilization was deteriorated in 2016
compared to year 2015. Though the company had increased their
investment in both current and fixed asset by 2.68% and 7.35% respectively
for the year 2016, somehow the sales declined by -8.16% in 2016 compared
to 2015.
(2 marks)
Financial Risk
The debts were increase in 2016 compared to 2015. Thus, the company
financial obligations in 2016 is considered risky.

QUESTION 3
a) Index Trend Statement of Financial Performance for the Years Ended:

2017 (%) 2016 (%) 2015 (%)

Sales 161.11√ 150.00√ 100.00
Cost of sales 189.47√ 187.16√ 100.00
Gross profit 129.41√ 108.47√ 100.00
Operating expenses 206.06√ 142.42√ 100.00
Operating profit 80.77√ 86.92√ 100.00
Interest expense 347.22√ 250.00√ 100.00
Income before tax 37.95√ 60.71√ 100.00
Income taxes 38.40√ 61.60√ 100.00
Net income 37.77√√ 60.37√√ 100.00

(20√*0.25 = 4 marks)
b) Analysis:
Positive trend for company's sales and negative trend for cost of sales since
2013 (company had lost control over the cost of sales) √. Increase trend for
company's operating expenses especially in 2017√. Therefore, it affects the
company's operating profit to be in downward trend since 2016. Company's
interest expense had consistently in upward trend since 2015 and recorded its
highest index in 2017 (company had high debts commitment) √. Negative trend
for company's net income since 2015 (company had lost control over their
expenses) √.
(6 marks)