Question

Financial Statement Ratio Analysis

The following information (in $000) has been obtained from Diamond Limited’s financial statements for the fiscal years ending December 31.

2020 2019   2018

Total assets $738 $583 $514

Current liabilities 78 71 93

Total liabilities 229 164 169

Total shareholders’ equity 494 427   387

Income before taxes 87 63 56

Interest expense 10 6 5

Net cash provided by operating activities 117 99 99

Net income 62 49 53

Number of common shares outstanding 67 77 73

Taken from stock market at Dec. 31 $16.3 $12.44 $11.7

Market price per share (not in $000)

There are no preferred shares issued by Diamond.

REQUIRED: Show all calculations. Round all calculations to two decimal places. Use appropriate units for each ratio calculation.

A. Calculate the following items for Diamond Limited for fiscal years 2019 and 2020:

i) Current cash debt coverage ratio

ii) Cash debt coverage ratio

iii) Rate of return on assets

iv) Earnings per share

v) Price earnings ratio

vi) Times interest earned

B. Comment on whether there has been improvement or deterioration from 2019 to 2020 in the ratios calculated. Take the perspective of Diamond’s management. Briefly explain.

.

Answer 1

Referance	Particulars	2020	2019	2018
A	Total Assets	$ 738.00	$ 583.00	$       514.00
B	Current Liabilities	$    78.00	$    71.00	$          93.00
C	Total Liabilities	$ 229.00	$ 164.00	$       169.00
D	Total shareholders equity	$ 494.00	$ 427.00	$       387.00
E	Income before Taxes	$    87.00	$    63.00	$          56.00
F	Interest expense	$    10.00	$       6.00	$            5.00
G	Net cash provided by operating activities	$ 117.00	$    99.00	$          99.00
H	Net Income	$    62.00	$    49.00	$          53.00
I	# Common Shares	$    67.00	$    77.00	$          73.00
J	Taken from Stock Market	$    16.30	$    12.44	$          11.70
K = G/Avg B	Current cash debt coverage ratio	1.57	1.21	Improved
L = G/ Avg C	Cash debt coverage ratio	0.30	0.30	No change
M = H/ Avg A	Rate of return on assets	0.09	0.09	No change
N = H / I	Earnings per share	$       0.93	$       0.64	Improved
O = J / N	Price earnings ratio	17.61	19.55	Detoriated
P = E/F	Times interest earned	8.70	10.50	Detoriated

Current cash debt coverage ratio jhas improved, which means the business can meat its debt with cash from operating activities better than last year. Earnings per share has also increased which means the shareholders get more now compared to 2019. PE ratio has detoriated, which means that the eps when compared to market price of share has not improved. Interest coverage ratio has alos detoriated, signalling that we have less income to cover our interest liability compared to last year.