BBF201/03 Assignment 1

BBF201/03 Introduction to Financial Management

Assignment 1 (25%)

January 2022 Semester

Instructions

1. There are THREE (3) questions in this assignment. Please answer ALL questions
in this assignment. Total marks awarded is 100, which will contribute to 25% of the
entire course assessment.

2. Your assignment will be assessed on the factual answer provided based on your
reading and analysis from various references related to this course. In addition,
you should demonstrate a sound knowledge of the topics covered and adhere to
the proper referencing technique.

3. Information on cover page:

 Course code and title
 Student name
 Student ID
 Name of tutor
 Class code

4. Please name and save your assignment accordingly.

5. The deadline for the submission of Assignment 1 is 18 Feb 2022 11:59:59 PM.
A softcopy should be submitted via Online Assignment Submission System.

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 BBF201/03 Assignment 1

Part A (100 marks)

Answer ALL questions

QUESTION 1 (30 MARKS)

a) At a recent Annual General Meeting of Iskandar Berhad, the company included a

statement in its annual report as to the prime objective of the company. That was
the “maximization of shareholder wealth”.

Following the meeting the Chairman received letters from the shareholders in
connection with this statement. The main cause for concern raised by those letters
were that the prime objective was not correct. Shareholders were suggesting that
the prime objective should be the maximization of profit.

Draft a reply for the Chairman of Iskandar Berhad supporting the company’s
published objective, which would be sent to each shareholder who had written,
together with an appropriate comment on objective that had been suggested by the
shareholders.

(15 marks)

b) Jonathan is the CEO of Sedap Rasa Berhad, a famous fast food company in
Malaysia. He and his handpicked board of directors are managing Sedap Rasa
Berhad with only some minority shares in the company. They receive very high
monthly salaries, and enjoy good profit related bonuses, but they are all under a
one-year employment contract with the company.

Currently, the market share price of Sedap Rasa Berhad is very much below the fair
value of the company. Jonathan and the board of directors choose to invest only in
projects with low risk.

Explain THREE (3) ways in which Jonathan and the board of directors may have a
conflict of interest with the shareholders.

(15 marks)

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QUESTION 2 (30 MARKS)

a) Explain TWO (2) possible scenarios which lead to increasing current ratio.
(5 marks)

b) Elaborate any TWO (2) financial statements that are important to shareholders and
potential investors of a company.
(10 marks)

c) Sylvia has obtained the following data at 31 December 2020 in respect of

Ravindran, a possible new customer.
RM
Trade receivables 18,460
Cash and cash equivalents 5,230
Inventory 34,200
Trade payables 28,560
Sales for the year 339,840
Gross profit 56,640

i. Calculate the following ratios for Sylvia’s business to two decimal places:
Current ratio
Liquid (acid test) ratio
Rate of inventory turnover
(9 marks)

ii. Sylvia has also obtained the following data in respect of Chong, another
possible customer.
Current ratio 4:1
Liquid (acid test) ratio 1.62:1
Rate of inventory turnover 8 times per year

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Sylvia’s main concern when choosing the customer is that they should pay her promptly.
Advise Sylvia which customer she should choose. Justify your answer.
(6 marks)

QUESTION 3 (40 MARKS)

Statements of comprehensive income for the year ended 30 June 2021:

Sash Berhad Cotton Berhad
RM’000 RM’000
Sales (all on credit) 24,000 14,000
Cost of sales 20,000 11,300
Gross Profit 4,000 2,700
Operating expenses 2,320 1,710
Operating profit 1,680 990
Debenture interest paid 240 90
Loss on asset disposal 20 30
Profit before tax 1,420 870
Taxation 720 450
Profit after tax 700 420
Dividends paid 120 114
Retained profit for the year 580 306

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Statements of financial position as at 30 June 2021:

Sash Berhad Cotton Berhad

RM’000 RM’000 RM’000 RM’000

Non-current assets:

Property, plant & equipment 5,000 4,500

Less: accumulated depreciation 1,000 1,560

4,000 2,940

Current assets:

Inventory 2,000 3,180

Trade receivable 990 1,320

Cash at bank 1,580 4,570 1,560 6,060

8,570 9,000

Capital and reserves:

RM1 ordinary shares 2,000 2,280

Share premium 1,000 520

Retained profit 2,000 3,500

5,000 6,300

Non-current liabilities:

Debentures 1,200 480

Current Liabilities:

Bank loan 900 900

Trade payables 1,470 1,320

2,370 2,220

8,570 9,000

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 BBF201/03 Assignment 1

a) Based on the financial statements above, calculate the following financial ratios for
both Sash Berhad and Cotton Berhad:
(i) Gross profit margin
(ii) Operating profit margin
(iii) Net profit margin
(iv) Current ratio
(v) Quick ratio
(vi) Receivables collection period
(vii) Inventory turnover period
(viii) Payables payment period
(ix) Debt-to-equity ratio
(x) Interest cover
(30 marks)

b) Prepare a short report giving your observations on the profitability, liquidity,

efficiency (activity) and debt ratios of the two companies.
(10 marks)

END OF ASSIGNMENT 1