Question

(a) You are given the following information.

addition to retained earnings. =RM508
Cash=RM242
Account receivables=RM850
Inventory =RM820
Net fixed assets = RM3408
Account payable = RM700
Short-term notes payables = RM740
Long-term liabilities = RM1100
Common stock = RM1160
Retained earnings = RM1620
Net sales = RM2760
Cost of goods sold = RM1210
Depreciation = RM360
Interest expense = RM160
Taxes= RM312
Retained earnings = RM508
Dividends paid= RM 218

requriments: word typing please

(i) Calculate the return on equity.
(ii) Calculate the return on total assets.
(iii) Calculate the net profit margin.
(iv) Calculate the operating profit margin.
(v) Calculate gross profit margin.
(vi) Calculate the sales to total asset ratio.
(vii) Calculate the current ratio.
(viii) Calculate the debt-to-equity ratio.
(ix) Calculate the equity multiplier.
(x) Calculate the interest coverage ratio.
(b) Discuss your concerns when you use ratio analysis in evaluating a company.
(c) Explain cash build and cash burn and how to calculate net cash burn rates.

Answer 1

A

1. Net income/ Equity

= 718/3288 = 21.84%

2.Retun on total assets = Net income/ Total assets

= 718/5320 = 23.50 %

3. Net income/ Net Sales

= 718/2760 = 26%

4. Operating profit margin ratio

Operating profit/Net Sales

Operating profit = Sales- COGS- Depreciatio

2760- 1210-360 = 1190

1190/2760 = 43%

5.Gross profit margin

Gross profit/ Net Sales

Gross profit= Sales- COGS

2760- 1210 = 1550

1550/2760 = 56.12%

6.Sales to total assets ratio

Sales/ Total assets

2760/5320 =51.88%

7.Current ratio

CA/ CL

CA = assets which can be converted within one year, cash, inventory,ac receivable, etc...

CL = Debt which can be paid within one year

Creditors, short term loan,ac payable,etc...

Here CA cash,AC receivable, inventory

CL AC payable,short term note

CA = 1912

CL= 1440

CR = 1912/1440 = 1.33

8.Debt equity ratio

Debt/ Equity

2540/3288 = .77

9. Equity multiplier = Total assets/ Total equity

5320/3288 = 1.61

10.Intrest coverage ratio

EBIT/ interest expenses

EBIT= Sales- COGS- Depreciation

1190/160 = 7.44 times

B.

Ratio analysis is mainly used when we're going to take investment and credit decisions.Here am analysing a company's ratio where am going to make investment or credit.

C

Cash build

Cash build is the amount the firm receives on it's sales

Cash build= Sales- changes in accounts receivables

Cash burn

Cash burn is the amount a firm using it's operating and financing and it's investing activities.

Cash burn= Inventory- Related purchase+ indirect expenses - (changes in accrued liabilities+ changes in payable)+ capital investment+taxes