AAST Msc program

Student Name: Dr.Mohamed El-Deeb

Final-Term Exam-Spring 2022

Question one: (20 Marks)

The financial statements for Samir and Aly Ltd are given below for the two years ending31st
December 2020 and 2021.The company operates a department store in the centre of a small
town.
Samir and Aly Financials (in thousands L.E.)
2020 2021
Assets
Cash 84,527 $60,806
Accounts receivable 136,629 194,096
Inventories 107,876 137,448
Prepaid expenses 21,727 32,413
Other current assets 31,287 34,383
Total current assets 382,046 459,146
Gross property, plant, and equipment 812,428 874,301
Accumulated depreciation (420,501) (469,847)
Net property, plant, and equipment 391,927 404,454
Investments 244,227 276,095
Other assets 19,436 9,555
Total assets 1,811,609 2,012,850

Liabilities
Short-term debt 15,000 15,000
Notes payable 19,036 18,159
Accounts payable 76,915 117,757
Taxes payable 10,529 11,901
Accrued expenses 101,465 119,685
Total current liabilities 222,945 282,502
Long-term debt 128,102 113,307
Other liabilities 125,874 114,166
Total liabilities 476,921 509,975
Equity
Common stock 289,000 289,000
Paid-in capital 37,776 37,422
Retained earnings 531,695 611,075
Less: treasury stock 253,272 282,876
Total equity 1,111,743 1,220,373

Total liabilities and equity 1,811,609 2,012,850

Reconciliation of retained earnings ( in thousands L.E. )

Retained earnings, December 31, 2020 531,695
2021 net income 106,101
Dividends paid 26,912
Other gains 191
Retained earnings, December 31, 2021 611,075

1
AAST Msc program
Student Name: Dr.Mohamed El-Deeb
Final-Term Exam-Spring 2022

Samir & Aly Income Statement (in thousands L.E.)

2020 2021
Sales 1,327,610 1,501,726
Cost of goods sold (1,025,425) (1,147,025)
Gross profit 302,185 354,701
Selling, general, and administrative expense (129,986) (125,219)
Depreciation (47,511) (49,346)
Operating profit 124,688 180,136
Interest expense (19,352) (17,024)
Non-operating income (expense) 7,809 6,659
Income before taxes 113,145 169,771
Provision for income taxes (42,500) (63,670)
Net income 70,645 106,101

Additional information
- No of outstanding shares in 2020 and 2021 is 10,000 shares.
- The market price of the share in 2020 is 10 L.E and in 2021 is 11 L.E.
Required

a) Calculate ratios that would be helpful in assessing the profitability, operating efficiency
(Activity) and risk (Debt) associated with the firm’s financial position. Use end of year values
and calculate ratios for both years. (10 Marks)

b) Critically discuss the c o m p a n y ’ s performance in 2020 and 2021, based on the

information derived in (a) above, and your general observations from the financial statements.
(10 Marks)

Question 2: True and false (10 Marks)

1. The balance sheet contains market values of assets at a point in time.

2. The income statement is also known as the P&L statement.
3. The use of financial ratios makes financial statements less comparable across
firms of different sizes.
4. Development of data that measure changes occurring from one accounting period
to another is a form of horizontal analysis.
5. Computation of ratios for an accounting period is a form of horizontal analysis.
6. The acid test ratio is regarded primarily as a measure of a company’s long term
Page 2 of 5
AAST Msc program
Student Name: Dr.Mohamed El-Deeb
Final-Term Exam-Spring 2022

liquidity situation.
7. The accounts receivable turnover is both a measure of liquidity and a measure of
activity.
8. The inventory turnover is computed by dividing cost of goods sold by average
inventory.
9. Vertical analysis is a technique to evaluate each item in a financial statement as a
percent of a base amount or item.
10.The four classification of ratio analysis are liquidity ratio, fixed asset ratio,
profitability ratio and efficiency ratios.
11.Solvency ratios measure the business’ very short-term ability to meet all financial
obligations.
12.Price earning ratio shows how much an investor is willing to pay for each dollar
of earnings given the actual market price.
13.A ratio can be expressed as a percentage, a rate, or a proportion.
14.Profitability ratios are frequently used as a basis for evaluating management's
operating effectiveness
15.Earnings per share is calculated only for ordinary shares.
16.Times interest earned is profitability ratio.
17.Inventory turnover is calculated by dividing cost of goods sold by the ending
inventory.
18.Financial ratios are meaningless unless they are compared to a company standard,
or historical or industry data.
19.Return on assets can be stated to equal net income/sales times sales/total assets.
20.DuPont analysis deals primarily with the current and quick ratio.

Question 2: (10 Marks)

Take the role of an investment analyst at Moon. It is your job to recommend investments for your
client. The only information you have is the following ratio values for two companies in the graphics
software industry.

Ratio Graphit.net Data Doctors

Days’ sales in receivables 44 50
Inventory turnover 10 6
Gross profit percentage 69% 60%
Net income as a percent of sales 13% 14%
Times interest earned 11 17
Page 3 of 5
AAST Msc program
Student Name: Dr.Mohamed El-Deeb
Final-Term Exam-Spring 2022

Return on equity 36% 28%

Return on assets 15% 20%

Write a report to the Moon investment committee. Recommend one company’s shares over the
other. State the reasons for your recommendation.

Good Luck

Formula Sheet

Liquidity Ratios

Working Capital Current Assets- Current Liabilities

Quick Ratio Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Acid Test Cash + Marketable Securities
Current Liabilities
Current Ratio Current Assets
Current Liabilities

Efficiency Ratios

Inventory Turnover COGS

Average Inventory
Days Inventory Outstanding 365
Turnover
Accounts Receivable Net Sales
Turnover Average net accounts receivable
Days’ Sales Outstanding 365
Turnover
Accounts Payable Turnover COGS
Average accounts payable
Days’ Payable Outstanding 365
Turnover
Cash Conversion Cycle DIO +DSO-DPO

Financial Leverage Ratio

Debt Ratio Total Liabilities

Total Assets
Debt to Equity Total Liabilities
Total Equity

Page 4 of 5
AAST Msc program
Student Name: Dr.Mohamed El-Deeb
Final-Term Exam-Spring 2022

Interest Coverage Ratio EBIT

(Times Interest Earned) Interest Expense
Equity Multiplier Average Total Assets
Average Total Equity

Profitability Ratios

Gross Profit Margin Gross Profit

Net Sales
Operating Income Margin Operating Income
Net Sales
Net Profit Margin (Return Net Income
on Sales) Net Sales
Asset Turnover Net Sales
Average Total Assets
Return on Assets Net Income
Average Total Assets
Return on Equity Net Income
Equity
Dupont Analysis Net Income X Net Sales X Average Total Assets
Net Sales Average Total Assets Equity

Market Ratios

Earnings per Share (EPS) Net Income

Average number of shares outstanding
Price-Earnings Ratio Market price per share
EPS
Dividend Yield Dividend per share
Market price per share
Book Value per Share Total stockholders equity - preferred equity
Average number of shares outstanding

Page 5 of 5