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Tutorial 3 Questions (Chapter 2)

This document contains 6 questions regarding corporate finance topics like capital markets, market efficiency, and ratio analysis. Question 1 asks about how savings are transferred to businesses and the role of financial markets. Question 2 discusses the implications of the Efficient Market Hypothesis. Question 3 asks what a technical analyst attempts to do. Questions 4 and 5 provide company financial data and ask questions about share prices, ratios, and indicators. Question 6 provides income statements and balance sheets for two companies and asks to calculate ratios to analyze profitability, efficiency, liquidity, gearing, and investment, and discuss what can be concluded from the ratios.

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jiayiwang0221
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72 views

Tutorial 3 Questions (Chapter 2)

This document contains 6 questions regarding corporate finance topics like capital markets, market efficiency, and ratio analysis. Question 1 asks about how savings are transferred to businesses and the role of financial markets. Question 2 discusses the implications of the Efficient Market Hypothesis. Question 3 asks what a technical analyst attempts to do. Questions 4 and 5 provide company financial data and ask questions about share prices, ratios, and indicators. Question 6 provides income statements and balance sheets for two companies and asks to calculate ratios to analyze profitability, efficiency, liquidity, gearing, and investment, and discuss what can be concluded from the ratios.

Uploaded by

jiayiwang0221
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CORPORATE FINANCE (UKFF 3013)

JANUARY 2024 TRIMESTER


TUTORIAL 3
CAPITAL MARKETS, MARKET EFFICIENCY
AND RATIO ANALYSIS (CHAPTER 2)

QUESTION 1
(a) Identify three distinct ways that savings are ultimately transferred to business firms
in need of cash.
(b) Describe the key role of a financial market in the flow of funds, and how an economy
might lose out when its financial markets are not developed.

QUESTION 2
What are the implications of the Efficient Market Hypothesis for stock exchange
investment analysis?

QUESTION 3
What does a technical analyst attempt to do?

QUESTION 4
A company’s board of directors makes a decision on 1st May to invest in a new project
that will have an NPV of +RM4 million. The decision is announced to the stock market
on 12th May.
The company has 50 million shares in issue and at close of trading on 30 th April these
had a market value of RM4.00 each.
Required:
State what would happen to the share price of the company if the stock market
(a) Has weak form efficiency
(b) Has semi-strong efficiency
(c) Has strong-form efficiency

QUESTION 5
The following data is taken from P Berhad’s financial statement for 2017 and 2018

Financial year ended


31 December 2017 31 December 2018
(RM) (RM) (RM) (RM)
Ordinary share capital 200,000 200,000
(200,000 ordinary shares
@RM1 each)
Share premium 128,000 128,000
Retained profits 432,000 512,000

1|Page
CORPORATE FINANCE (UKFF 3013)
JANUARY 2024 TRIMESTER
TUTORIAL 3
CAPITAL MARKETS, MARKET EFFICIENCY
AND RATIO ANALYSIS (CHAPTER 2)

Retained earnings for the year 80,000 512,000 112,000 624,000


840,000 952,000
Dividend per share (RM) 0.30 0.34
Market price per share at year 6.30 7.56
end
Required:
(a) Calculate for each year
1. Earnings per share (EPS)
2. Price-earnings ratio (P/E)
3. Dividend payout ratio
(b) Explain the uses of the P/E ratio. What does a high P/E ratio indicate?

QUESTION 6
Both Ali Berhad and Bhaskar Berhad operate wholesale electrical stores throughout
Malaysia. The financial statements of each business for the year ended 30 June last year
are as follows:

Statements of financial position as at 30 June last year


Ali Bhaskar
Berhad Berhad
RM million RM million
ASSETS
Non-current assets
Property, plant and equipment (cost less
depreciation)
Land and buildings 360.0 510.0
Fixtures and fittings 87.0 91.2
447.0 601.2
Current assets
Inventories 592.0 403.0
Trade receivables 176.4 321.9
Cash at bank 84.6 91.6
853.0 816.5
Total assets 1,300.0 1,417.7
EQUITY AND LIABILITIES
Equity
£1 ordinary shares 320.0 250.0
Retained earnings 367.6 624.6
687.6 874.6

2|Page
CORPORATE FINANCE (UKFF 3013)
JANUARY 2024 TRIMESTER
TUTORIAL 3
CAPITAL MARKETS, MARKET EFFICIENCY
AND RATIO ANALYSIS (CHAPTER 2)

Non-current liabilities
Borrowings – loan notes 190.0 250.0
Current liabilities
Trade payables 406.4 275.7
Taxation 16.0 17.4
422.4 293.1
Total equity and liabilities 1,300.0 1,417.7

Income statements for the year ended 30 June last year


Ali Bhaskar
Berhad Berhad
RM million RM million
Revenue 1,478.1 1,790.4
Cost of sales (1,018.3) (1,214.9)
Gross profit 459.8 575.5
Operating expenses (308.5) (408.6)
Operating profit 151.3 166.9
Interest payable (19.4) (27.5)
Profit before taxation 131.9 139.4
Taxation (32.0) (34.8)
Profit for the year 99.9 104.6
All purchases and sales were on credit. Ali Berhad had announced its intention to
pay a dividend of RM135 million and Bhaskar Berhad RM95 million in respect of the
year. The market values of a share in Ali Berhad and Bhaskar Berhad at the end of
the year were RM6.50 and RM8.20, respectively.

Required:
a) For each business, calculate two ratios that are concerned with each of the
following aspects:
I. profitability
II. efficiency
III. liquidity
IV. gearing
V. investment (ten ratios in total).

b) What can you conclude from the ratios that you have calculated?

c) Ratios help to eliminate some of the problems of comparing businesses of different


sizes. Does this mean that size is irrelevant when interpreting and analysing the
position and performance of different businesses?

3|Page
CORPORATE FINANCE (UKFF 3013)
JANUARY 2024 TRIMESTER
TUTORIAL 3
CAPITAL MARKETS, MARKET EFFICIENCY
AND RATIO ANALYSIS (CHAPTER 2)

d) Identify and discuss three reasons why the P/E ratio of two businesses operating in
the same industry may differ.

4|Page

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