BFN1014 Financial Management I

BFN1014 Financial Management I

Subject: Business / Finance
Question
BFN1014 Financial Management I (Sem II, 2013/2014) BFN1014 Financial Management I
ASSIGNMENT I Financial Statement and Cash Flow Analysis
Task 1:
You were recently employed by Union Bank as a financial analyst. One of your first
job assignments is to analyze the current financial condition of Buffalo Berhad. You
are given the following 2012 balance sheet and income statement information for
both of the companies. In addition, you are told that Buffalo Bhd has 200,000 shares
of common stock outstanding, currently trading at RM27.50 per share, and has made
annual purchases of RM6.2 million.
You are required to prepare analysis reports for the company in 2012. The analysis
involves cross-sectional and time series analysis. You are also told to base your analysis
on five categories of ratios: (a) liquidity ratios, (b) activity ratios, (c) debt ratios, (d)
profitability ratios, and (e) market ratios.
BUFFALO BERHAD
Buffalo Bhd.
Income Statement For the Year Ended December 31, 2012
Sales revenue
Less: Cost of goods solda
Gross profit
Less operating expenses:
Selling expense
General and administrative
expense
Lease expense
Depreciation expense
Total operating expense
Operating profit (EBIT)
Less: Interest expense
Net profits before taxes
Less: Taxes (rate = 40%)
Net profits after taxes
Less: Preferred stock dividends
Earnings available for common stockholders
Earnings per share (EPS)
a RM10,000,000
7,500,000
RM 2,500,000
RM300,000 650,000
50,000
200,000
1,200,000
RM1,300,000
200,000
RM1,100,000
440,000
RM 660,000
50,000
RM 610,000
RM3.05 Annual credit purchases of RM6.2 million were made during the year. ________________________________________________________________________
JHK/ZS/HAK
1/5 BFN1014 Financial Management I (Sem II, 2013/2014) Buffalo Bhd.
Balance Sheet
As of December 31, 2009
Assets Current assets
Cash
Marketable securities
Accounts receivable
Inventories
Total current assets RM 200,000
50,000
800,000
950,000
RM 2,000,000 Gross fixed assets
Less: Accumulated
depreciation
Net fixed assets RM12,000,000
3,000,000 Other assets
Total assets RM 1,000,000
RM12,000,000 a RM 9,000,000 Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
RM 900,000
Notes payable
200,000
Accruals
100,000
Total current liabilities
RM 1,200,000
Long-term debt (including
financial leases)
RM 3,000,000
Stockholders’ equity
Preferred stock (25,000 shares, RM 1,000,000
RM2
dividend)
Common stock (200,000 shrs,
600,000
a
RM3 par)
Paid-in capital in excess of par
5,200,000
Retained earnings
1,000,000
Total stockholders’ equity
RM 7,800,000
Total liabilities and stockholders’ RM12,000,000
equity On December 31, 2009, the firm’s common stock closed at RM27.50. ________________________________________________________________________
JHK/ZS/HAK
2/5 BFN1014 Financial Management I (Sem II, 2013/2014) Buffalo Bhd.
Historical and Industry Average Ratios
___________________________________________________________________________ Industry Ratio
Current ratio
Quick (acid-test) ratio
Inventory turnover
Average collection perioda
Average payment perioda
Fixed asset turnover
Total asset turnover
Debt ratio
Debt-to-equity ratio
Times interest earned ratio
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Return on common equity (ROE)
Earnings per share (EPS)
Price/earnings (P/E) ratio
Market/book (M/B) ratio Actual
2011
1.55
0.92
9.21
36.4 days
60.8 days
1.05
0.80
0.20
0.27
7.3
0.27
0.12
0.067
0.054
0.073
RM2.20
10.5
1.05 Industry
Average
2012
1.85
1.05
8.60
35.0 days
45.8 days
1.07
0.74
0.30
0.39
8.0
0.25
0.10
0.058
0.043
0.072
RM1.50
11.2
1.10 a Based on a 365-day year and on end-of-year figures. ________________________________________________________________________
JHK/ZS/HAK
3/5 BFN1014 Financial Management I (Sem II, 2013/2014) Task 1 Description:
Use the following guidelines to complete this job assignment. First, identify which ratios you
need to use to evaluate Buffalo Bhd (a) liquidity position, (b) business activity, (c) debt position,
(d) profitability, and (e) market comparability. Next, calculate these ratios. Finally, analyze its
overall financial situation both in comparison to industry averages and over the period of 2011–
2012 for the company.
1. Based on the provided industry average information, discuss the firm’s liquidity
position. Discuss specific areas in which the firm compares positively and negatively
with the overall industry.
2. Based on the provided industry average information, what do the firm’s activity ratios
tell you? Discuss specific areas in which the firm compares positively and negatively
with the overall industry.
3. Based on the provided industry average information, discuss the firm’s debt position.
Discuss specific areas in which the firm compares positively and negatively with the
overall industry.
4. Based on the provided industry average information, discuss the firm’s profitability
position. As part of this investigation of firm profitability, include a DuPont analysis.
Discuss specific areas in which the firm compares positively and negatively with the
overall industry.
5. Based on the provided industry average information, how is the firm viewed in the
marketplace? Discuss specific areas in which the firm compares positively and
negatively with the overall industry.
6. Overall, what are the firm’s strong and weak points? What would be your final
recommendation knowing that your boss will approve new loans only to companies in
a better-than-average financial position, (approval or denial of loan)?
Task 2:
Step 1: Go to:
http://www.bursamalaysia.com/market/listed-companies/list-of-companies/mainmarket/
Step 2: Select any two (2) companies in different sectors.
Step 3: Using their financial statements (from the 2012 annual report), compare the
following:
(i) Average Age of Inventory
(ii) Average Collection Period
Step 4: Explain the differences between the companies.
________________________________________________________________________
JHK/ZS/HAK
4/5 BFN1014 Financial Management I (Sem II, 2013/2014) IMPORTANT NOTE:
ASSIGNMENT FORMAT Remember that this is a written report to your boss. The
writing style should be formal and professional. All the calculations should be shown
and attached together with the report in Appendix. Citations/ references should be
listed in Reference, if there is any.
The report should be typewritten and justified.
Spacing: 1.5
Font type: Times New Roman
Font Size: 12
DUE DATE This assignment must be submitted in hardcopy to your respective
lecturer (BC131 & 132- Ms. Kwan, BC133- Ms. Hazlina, BC134- Ms Zarehan)
BEFORE 3pm on TUESDAY, 10th December 2013 (Week 8).
SUBMISSION It must be accompanied by a copy of “Assignment Cover” sheet that
has been completed and signed by every member in a group. Failure to attach the
required cover or to submit a complete cover details will result in deduction of overall
group marks.
REMINDER All work submitted must be your own. Copying or not acknowledging
the work of others is considered plagiarism. The University regards plagiarism as a
form of academic misconduct and has strict rules regarding plagiarism. The group
shall be assigned ZERO for the said assessment if committed in such misconduct
without further negotiation. Please take note that this is a group assignment. Thus, No
individual assignment will be accepted for assessment under any circumstances. LATE SUBMISSION WILL BE PENALIZED. Please note that no excuse for late
submission will be accepted under any circumstances. There will be 50% deduction
for every one hour delay.