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Explanation & Answer
Attached.
Running Head: STRATEGIC FINANCE AND DECISION MAKING
Strategic Finance and decision making
Students Name
Institution
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STRATEGIC FINANCE AND DECISION MAKING
Question 01
A. Accounting Ratios for the year ended 31st Dec 2015 & 2014.
i.
Profitability Ratios
Ratio
Meaning
Calculation
2015
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Return on
3,501
2014
3,068
= 0.11
22,935
31,875
=0.13
Assets
Gross profit
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
7,608
= 0.33
23,125
6,285
= 0.28
22,060
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝐸𝑞𝑢𝑖𝑡𝑦
3,501
= 0.16
22,375
3,068
= 0.16
18,875
margin
Return on
Equity
ii.
Working capital control (activity and liquidity ratios)
Ratio
Meaning
Calculation
2015
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Current
2014
9,125
= 1.35
6,750
5,560
= 1.46
3,810
𝐶𝑎𝑠ℎ + 𝑀𝑎𝑟𝑘𝑎𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 4,250
= 0.63
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
6,750
470
= 0.12
3,810
Ratio
Cash ratio
iii.
Financial risks ratios
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STRATEGIC FINANCE AND DECISION MAKING
Ratio
Meaning
Calculation
2015
2014
Debt Ratio
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
9,500
= 0.30
31,875
4,060
= 0.18
22,935
Debt-Equity
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝑆𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
9,500
= 0.42
22,375
4,060
= 0.22
18,875
Ratio
iv.
Earnings per share, Dividends per share & Dividend payout ratio
Ratio
Meaning
Calculation
2015
Earnings per
2014
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝐴𝑣. 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠
3,501
= 0.28
12,500
3,068
= 0.25
12,500
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠
1,250
= 0.10
12500
1,000
= 0.08
12500
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
0.10
= 0.36
0.28
0.08
= 0.32
0.25
share
Dividends per
share
Dividend
Payout Ratio
B. Evaluation
The financial controller says that the 2015 year was a challenging year for most of the
companies. Despite that this company has been able to produce an excellent set of results in the
difficult climate. I agree with the statement by the financial controller partly and disagree in
some point. I can say that the company struggled because of the prudent financial situation but
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STRATEGIC FINANCE AND DECISION MAKING
still most of the ratios went down. Therefore, the company might have improved more than its
competitors but it was not able to beat the financial state of the previous period.
Majority of the financial ratios for the year 2015 shows a financial weakness that emerged to
the company in the current year 2015. The financial controller was right when he said that the
year was very cha...