Question

Question 1
The financial statements of Old Chang Kee Pte Ltd are given below:

Old Chang Kee Profit & Loss
for Year ending 31 March  ($'000)
	2019	2018	2017
Revenue	89,789	85,487	78,345
less Cost of goods sold	(32,251)	(33,249)	(28,721)
Gross Profit	57,538	52,238	49,624
less Expenses
Selling and distribution	(38,039)	(35,291)	(32,333)
Administrative	(12,892)	(11,782)	(11,614)
Other expenses	(1,774)	(1,791)	(4,504)
Operating Profit	4,833	3,374	1,173
Interest income	64	49	81
Other income	1,145	1,680	1,351
Profit before interest & tax	6,042	5,103	2,605
Share of results of joint venture	(301)	(76)
less Interest expense	(329)	(291)	(175)
Profit before tax	5,412	4,736	2,430
less Tax	(1,074)	(952)	685
Profit after tax	4,338	3,784	1,745
Other comprehensive income	76	(19)	(1,703)
Net profit	4,414	3,765	42

Old Chang Kee Balance Sheet
as at March 31 ($'000)	2019	2018	2017
Fixed Assets
Property, plant	28,453	31,560	27,571
Intangible assets	228	289	352
Other investment	394	525	273
Long term deposits	2,568	2,434	2,024
Total Fixed Assets	31,643	34,808	30,220
Current assets
Inventories	1,097	1,192	705
Trade and other receivables	336	277	253
Deposits	756	1,015	1,040
Prepayments	1,013	1,192	2,939
Other debtors	625
Cash	15,447	12,787	15,555
Total Current Assets	19,274	16,463	20,492
Total Assets	50,917	51,271	50,712
Current Liabilities
Trade and other payables	7,491	7,891	8,252
Other liabilities	176	170	170
Provisions	2390	2,398	2,285
Bank loans	1,430	1,430	4,230
Finance lease liabilities	146	166	117
Provisions	1,321	697	1,129
Total Current Liabilities	12,954	12,752	16,183
Long Term Liabilities
Bank term loans	7,748	9,179	6,032
Finance lease liabilities	502	506	160
Deferred Tax Liabilities	1,256	1,336	963
Total Liabilities	22,460	23,773	23,338
Shareholders' Equity	13,964	13,964	13,964
Retained earnings	14,398	13,515	13,372
Other reserves	95	19	38
Total Shareholders' Equity	28,457	27,498	27,374
Total Liabilities and SE	50,917	51,271	50,712
Other Statistics
Net assets value (cents)	27.43	28.52	22.55
Earnings per share (cents)	4.35	4.1	1.44
Share price (cents)	78.5	75	85

Answer the following questions regarding the analysis of Old Chang Kee’s financial statements:

1. (i) Interpret Old Chang Kee’s liquidity and discuss whether it has any difficulty paying its creditors.

2. (ii) Which ratios computed in part (a) suggest that the inventory level is relatively low. Briefly discuss why this is so.

3. (iii) An analyst computed the expected earnings of the company to be $0.05. Based only on the PE ratios you have computed and the financial data given in the question, what would be a reasonable value of each share? Examine and explain.

4. (iv) Discuss why Old Chang Kee’s stock price is very much higher than its net asset value.

Answer 1

Answer (i) : The know the liqudity position of the company these are the following ratio have to be computed:

1) Current Ratio

2) Liquid Ratio

3) Cash Ratio

4) Debtors Turnover Ratio

5) Creditors Turnover Ratio

the above ratios as calculated below :

Current Assets
	2019	2018	2017
Inventories	$   1,097.00	$   1,192.00	$       705.00
Trade and other Receivables	$       336.00	$       277.00	$       253.00
Prepayments	$   1,013.00	$   1,192.00	$   2,939.00
Other Debtors	$       625.00
Cash	$ 15,447.00	$ 12,787.00	$ 15,555.00
Deposits	$       756.00	$   1,015.00	$   1,040.00
Total current Assests	$ 19,274.00	$ 16,463.00	$ 20,492.00
Current Liabilities
	2019	2018	2017
Trade other payables	$   7,491.00	$   7,891.00	$   8,252.00
Other Liabilities	$       176.00	$       170.00	$       170.00
Provisions	$   2,390.00	$   2,398.00	$   2,285.00
Bank Loans	$   1,430.00	$   1,430.00	$   4,230.00
Finance Lease liabilities	$       146.00	$       166.00	$       117.00
Provisions	$   1,321.00	$       697.00	$   1,129.00
Total Current liabilities	$ 12,954.00	$ 12,752.00	$ 16,183.00
CR =Current Assets/Current Liabilities	1.48788019	1.29101317	1.26626707
Cash and bank Deposit
	2019	2018	2017
cash	$ 15,447.00	$ 12,787.00	$ 15,555.00
Deposits	$       756.00	$   1,015.00	$   1,040.00
	$ 16,203.00	$ 13,802.00	$ 16,595.00
Cash Ratio= Cash & bank Deposit/Current Liabilties	1.25081056	1.08234003	1.02545881

Liquid Assets
	2019	2018	2017
Trade and other Receivables	$       336.00	$       277.00	$       253.00
Cash	$ 15,447.00	$ 12,787.00	$ 15,555.00
Other Debtors	$       625.00
Deposits	$       756.00	$   1,015.00	$   1,040.00
	$ 17,164.00	$ 14,079.00	$ 16,848.00
Liquid Liabilities
	2019	2018	2017
Trade other payables	$   7,491.00	$   7,891.00	$   8,252.00
Other Liabilities	$       176.00	$       170.00	$       170.00
Provisions	$   2,390.00	$   2,398.00	$   2,285.00
Bank Loans	$   1,430.00	$   1,430.00	$   4,230.00
Finance Lease liabilities	$       146.00	$       166.00	$       117.00
Provisions	$   1,321.00	$       697.00	$   1,129.00
	$ 12,954.00	$ 12,752.00	$ 16,183.00
LR = Liqud Assets/ Liquid Liabilities	1.32499614	1.10406211	1.0410925

Debtors Turover Ratio
	2019	2018	2017
Revenue	$ 89,789.00	$ 85,487.00	$ 78,345.00
Trade & Other Receivables	$       336.00	$       277.00	$       253.00
Other Debtors	$       625.00
Total trade Debtors and Receivables	$       961.00	$       277.00	$       253.00
Debtors Turover Ratio= Revenue/ Total Trade Debtors & Receivables	93.43288	308.61733	309.66403
in days	3.90654757	1.18269444	1.17869679

Creditors Turover Ratio
	2019	2018	2017
Trade and other payables	$   7,491.00	$   7,891.00	$   8,252.00
Cost of goods Sold	$ 32,251.00	$ 33,249.00	$ 28,721.00
b/a	4.30529969	4.21353441	3.48048958
indays	84.7792317	86.6256128	104.870304

The liquidity position of the company is as follows :

1)Current ratios of the company has been increasing from year 2017 to 2019 I,e from 1.26 to 1.48 but shows within industry bench mark 2:1

2)Liquid Ratio of the company has been increasing from year 2017 to 2019 I,e from 1.04 to 1.32 but shows it exceeds the industry bench market of 1:1 which is not good liquid postion.

3)Cash ratio of the company has been increasing from year 2017 to 2019 I,e from 1.02 to 1.25 but it shows it exceeds the industry benchmark 0.5:1 which is not having good cash position.

4)Debtors turnover in days has been increasing from year 2017 to 2019 I,e from 1.17 days to 3.90 days but credit collection period very good and its in control of the company.

5)Creditors Turnover in days shows that an improvement in credit payable to suppliers from year 2017 to 2019 I,e 100 days to 84 days. The company has improved its liquidity position to pay to suppliers in 84 days in 2019.