Question

: Financial Statement Analysis

The following are BAC Bhd.’s year end statement of financial position and statement of profit and loss for 2016 and 2017:
2017 ($) 2016 ($)
Non Current Assets:   
Gross Non Current assets 317,503 232,179
Less accumulated depreciation 54,045 34,187
Net Non Current assets 263,458 197,992
Current Assets:
ICLBAT/JANUARY2019
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Cash and equivalents 208,323 102,024
Accounts receivable 690,294 824,979
Inventories 942,374 715,414
Total Current Aassets 1,840,991 1,642,417
Total Assets 2,104,449 1,840,409
Non Current Liabilities   
Long term debt 410,769 372,931
Total Non Current Liabilities 410,769 372,931
Current Liabilites   
Short term borrowings 288,798 296,149
Accounts payable 636,318 414,611
Accruals 106,748 103,362
Total Current Liabilities 1,031,864 814,122
Total Liabilities 1,442,633 1,187,053
Shareholders’ Equity   
Common stock (100,000 shares) 550,000 550,000

Retained earnings 111,816 103,356
Total Shareholders’ Equity 661,816 653,356
Total Liabilities and Shareholders’ Equity 2,104,449 1,840,409

2017 ($) 2016 ($)
Sales 2,325,967 2,220,607 (-) Cost of goods sold 1,869,326 1,655,827 Other expenses 287,663 273,870 Total operating costs excluding depreciation and amortization 2,156,989 1,929,697 Depreciation and amortization 25,363 26,341 Total operating costs 2,182,352 1,956,038 EBIT 143,615 264,569 (-) Interest expense 31,422 13,802 EBT 112,193 250,767 (-) Taxes (30%) 33,658 75,230 Net income 78,535 175,537

Related items:
2017 2016 Total dividends paid $70,075 $150,000 Stock price per share $15.60 $21.80

Required:
(a) Calculate the after tax operating income (i.e. after-tax EBIT) for 2016 and 2017.

(b) Calculate the net working capital (NWC) that is supported by non-free sources for 2016 and 2017, and the changes in NWC between these two years.

(c) What is free cash flow (FCF)? Calculate the FCF for 2017. Is a negative FCF always a bad sign?

(d) Calculate the following for the company for 2017: (i) Earnings per share (1 mark) (ii) Dividends per share (1 mark) (iii) Book value per share (1 mark) (Total: 15 marks)

Answer 1

(a) Calculate the after tax operating income (i.e. after-tax EBIT) for 2016 and 2017. (4 marks)
EBIT		143,615.00	264,569.00
Tax		43,084.50	79,370.70
EBIT( After Tax)		100,530.50	185,198.30

(b) Calculate the net working capital (NWC) that is supported by non-free sources for 2016 and 2017, and the changes in NWC between these two years. (4 marks)
Cash and equivalents			208,323.00	102,024.00
Accounts receivable			690,294.00	824,979.00
Inventories			942,374.00	715,414.00
Total			1,840,991.00	1,642,417.00
Short term borrowings			288,798.00	296,149.00
Accounts payable			636,318.00	414,611.00
Accruals			106,748.00	103,362.00
			1,031,864.00	814,122.00
Net working capital			809,127.00	828,295.00
Changes in NWC			(19,168.00)

c) Free cash flow represents the cash a company generates after cash outflows to support operations and maintain its capital assets.

There are two types of cash flows. free cash flow to firm and free cash flow to equity.

I am calculating here free cash flow to equity

EAT		78,535.00
Depreciation and amortization		25,363.00
Long term loan		37,838.00
		141,736.00
Working capital increase		(19,168.00)
		122,568.00
Asset purchased		(85,324.00)
Free cash flow to equity		37,244.00

d)

EPS	78535/100000	0.79
DPS	70075/100000	0.70
BPS	(111816+550000)/100000)	6.62