Interpretation of financial statements and risk appraisals.

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Business Finance

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A-Financial statement analysis. B- project risk analysis. Please follow the assignment paper attached and the requirements

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COLLEGE OF BANKING AND FINANCIAL STUDIES DEPARTMENT OF UNDERGRADUATE PROGRAMME B.Sc. in Accounting, Auditing and Finance / BBA/ BSc. Islamic Finance ASSIGNMENT BRIEF/GW/CS Weightage: 30% Student Name & ST Number Semester 2 September - December 2018 Assignment Title Interpretation of financial statements and risk appraisals Module Assessor: Dr.Anand / Ms.Mariam Principle of financial Management Start Date: 14/11/2018 Internal Verifier Dr.Salman Due Date: 10/12/2018 Required Work, Format and Grading You must submit the following by the assignment due date: Completed answers to each task, making sure that you fully address each of the outcome criteria. Answer all questions separately. Assignments without TURNITIN report will not be accepted. . Resources: You need to demonstrate a confident application of the theories to the assignment task. The theoretical underpinning of your observations and deliberations should also demonstrate a good understanding of the subject by the way that your analysis is structured. You can access the Internet to research about the topic. You should demonstrate good academic practice by the appropriate use of academic texts and journals that are properly referenced. Guidelines and further information about assignment: Assignment must be submitted with the "Turnitin” report. If the report generated indicates a similarity index percentage of 20% or more, a review of your assignment is necessary to ensure the same is reduced to less than 20%. Student declaration: I certify that the work contained in this assignment was researched and prepared by me: Signature: Date: The user ID and Password for submitting the soft copy of the report through TURNITIN is as follows: Class ID: 19641103 Enrolment Password: FM2018 Scenario Task A - Financial Statement Analysis (20 marks) The Directors of ABC LTD have being presented with the following abridged financial statements. They have requested the accounts manager to provide a report over the past five years of the financial statements. Statements of comprehensive income and Statements of financial positions for the year ended 30th December. 2013 2014 2015 2016 2017 2600 3500 Sales Revenue 2750 3600 3840 -1560 Cost of Sales -2350 -1620 -2160 -2250 1040 1150 1130 1440 1590 730 800 602 875 905 Gross Profit Operating Expenses Operating profit Interest Payable 310 350 528 565 685 -50 -50 -35 -15 0 Profit Before Taxation 260 300 493 550 685 Taxation -105 -125 -130 -145 -165 Profit for the year 155 175 363 405 520 2013 2014 2015 2016 2017 ASSETS Non - Current Assets Property, Plant and equipment 1265 1525 1575 1900 1860 1265 1525 1575 1900 1860 Current Assets 250 400 475 400 500 Inventories Trade Receivables Cash at bank 105 145 150 225 325 380 115 200 350 300 735 660 825 975 1125 TOTAL ASSETS 2000 2185 2400 2875 2985 EQUITY AND LIABILITIES Equity Share capital Retained Earnings 620 620 740 1200 1500 480 580 650 725 875 1100 1200 1390 1925 2375 Task B - Project Risk Analysis (10 marks) Nimbly PLC is considering two mutually exclusive projects Delphi and Oracle. The possible NPVs for each project and their associated probabilities are as follows; Delphi NPV($m) Probability of occurrence 20 40 0.2 0.6 0.2 60 Oracle NPV($m) Probability of occurrence 0.5 0.3 30 40 65 0.2 Required: 1. Calculate Expected NPV (4 Marks) 2. Calculate the Standard Deviation of NPV (4 Marks) 3. Appraise the management about this project with your comments. (2 Marks)
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Explanation & Answer

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Income statament
2013
2600
-1560
1040
730
310
-50
260
-105
155

2014
3500
-2350
1150
800
350
-50
300
-125
175

2015
2750
-1620
1130
602
528
-35
493
-130
363

2016
3600
-2160
1440
875
565
-15
550
-145
405

2017
3840
-2250
1590
905
685
0
685
-165
520

2013
Assets
Non-current assets
Property, plant and Equipment 1265
1265
Current assets
Inventories
250
Trade Receivables
105
Cash at bank
380
Total assets
2000

2014

2015

2016

2017

1525
1525

1575
1575

1900
1900

1860
1860

400
145
115
2185

475
150
200
2400

400
225
350
2875

500
325
1125
3810

620
480
1100

620
580
1200

740
650
1390

1200
725
1925

1500
875
2375

500

500

300

150

0

300
100
400

375
110
485

450
260
710

375
425
800

400
210
610

2000

2185

2400

2875

2985

Sale revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Interest payable
Profit before taxation
Taxation
Profit for the year

Equity and Liabilities
Equity
Share capital
Retained earnings

Non-current liabilities
Borrowings -9% Loan Notes
Current Liabilities
Trade payables
Other Payables

Total Equity and Liabilities

a. Common size and indexed statement for income statement and financial position statement

Common size income statemet

Sale revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Interest payable
Profit before taxation
Taxation
Profit for the year

2013
100%
-60%
40%
28%
12%
-2%
10%
-4%
6%

2014
100%
-67%
33%
23%
10%
-1%
9%
-4%
5%

2015
100%
-59%
41%
22%
19%
-1%
18%
-5%
13%

2016
100%
-60%
40%
24%
16%
0%
15%
-4%
11%

2017
100%
-59%
41%
24%
18%
0%
18%
-4%
14%

Common Size Financial position statement
2013

2014

2015

2016

2017

70%
70%

66%
66%

66%
66%

49%
49%

18%
7%
5%
100%

20%
6%
8%
100%

14%
8%
12%
100%

13%
9%
30%
100%

31%
24%
55%

28%
27%
55%

31%
27%
58%

42%
25%
67%

50%
29%
80%

25%
0%
15%
5%
20%

23%
0%
17%
5%
22%

13%
0%
19%
11%
30%

5%
0%
13%
15%
28%

0%
0%
13%
7%
20%

100%

100%

100%

100%

100%

2013
40.0%
11.9%

2014
32.9%
10.0%

2015
41.1%
19.2%

2016
40.0%
15.7%

2017
41.4%
17.8%

Assets
Non-current assets
Property, plant and Equipment 63%
63%
Current assets
Inventories
13%
Trade Receivables
5%
Cash at bank
19%
Total assets
100%
Equity and Liabilities
Equity
Share capital
Retained earnings

Non-current liabilities
Borrowings -9% Loan Notes
Current Liabilities
Trade payables
Other Payables

Total Equity and Liabilities

b. Financial ratios
Profitability ratios
Gross profit margin
Operatinn profit margin

45.0%
40.0%
35.0%

Net profit margin
6.0%
Return on capital employed 24.5%

5.0%
23.0%

13.2%
33.5%

11.3%
29.7%

13.5%
36.8%

35.0%
30.0%
25.0%
20.0%
15.0%

Efficiency ratios
2013

2014
Inventory holding period
50.48
Settlement period for trade receivables 13.04
Settlement period for trade payables
52.42

2015
98.57
19.58
92.94

2016
73.93
19.01
69.70

2017
73.00
26.14
62.86

2015
1.16
0.49

2016
1.22
0.72

2017
3.20
2.38

10.0%
5.0%
0.0%
2012

Liquidity ratios
Current ratio
Acid-test ratio

2013
1.84
1.21

2014
1.36
0.54

3.00
2.50

Solvency ratio
Gearing ratio
Interest cover

3.50

2013
39.53%
6.20

2014
32.79%
7.00

2015
19.05%
15.09

2016
2017
7.89%
0.00%
37.67 #DIV/0!

2.00
1.50
1.00
0.50
2012

Index Income statemement

2013
Sale revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Interest payable
Profit before taxation
Taxation
Profit for the year

2014
35%
51%
11%
10%
13%
0%
15%
19%
13%

2015
-21%
-31%
-2%
-25%
51%
-30%
64%
4%
107%

2016
31%
33%
27%
45%
7%
-57%
12%
12%
12%

2017
7%
4%
10%
3%
21%
-100%
25%
14%
28%

Indexed financial position sta...


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