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BBMF2013 Tutorial Answers Chapter 3 Tools of Financial Analysis and Planning

The document contains 5 problems involving financial ratios and calculations using income statements and balance sheets. The problems ask the reader to calculate missing values, find ratios such as return on assets and return on equity, and determine inventory levels and turnover from financial information provided.
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0% found this document useful (0 votes)
61 views3 pages

BBMF2013 Tutorial Answers Chapter 3 Tools of Financial Analysis and Planning

The document contains 5 problems involving financial ratios and calculations using income statements and balance sheets. The problems ask the reader to calculate missing values, find ratios such as return on assets and return on equity, and determine inventory levels and turnover from financial information provided.
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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Tutorial 3

1. Alpha, Beta and Chi are companies in the furniture industry in Bandar Seroja. The table below shows the
income statement and balance sheet for the companies.

(a) Find the missing values.

(b) Show your calculations.

Alpha Beta Chi


Sales RM750,000 (iv) = Net Income / Net Profit (vii) = Total Asset
Margin Turnover x Total Assets
= RM45,000 / 0.008 == 0.8 X RM375,000
= RM5,625,000 = RM300,000
Net Income RM37,500 RM45,000 (viii) = Net Profit Margin
x Sales
= 0.05 X RM300,000
= RM15,000
Total assets RM125,000 (v) = Net Income / ROA RM375,000
= RM45,000 /0.04
= RM1,125,000
Total assets (i) = Sales/Total Assets (vi) = Sales/Total Assets 0.8 times
turnover = RM750,000/RM125,000 = RM5,625,000/RM1,125,000
= 6 times = 5 times
Net profit (ii) = Net Income/Sales x 100% 0.8% 5%
margin = RM37,500/750,000
= 0.05 @ 5%
Return on (iii) = Net Income/ Total 4% (ix) = Net Income /Total
x 100%
total assets Assets Assets
= RM37,500/RM125,000 = 15000/375000
= 30% = 4%
2. A firm has a profit margin of 15 percent on sales of RM20,000,000. If the firm has debt of RM7,500,000,
total assets of RM22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm's
return on asset (ROA) ?
ROA = Net Income/Total Asset
Profit Margin = Net Income / Sales Step 1: Find Net Income
Net Income = 0.15(RM20,000,000) = RM3,000,000.
Net Income
ROA = Total assets Step 2: Find ROA
ROA = RM3,000,000/RM22,500,000 = 13.33%.

3. Rizqi Haykal Berhad has the following data:


Net income: RM240,000 Sales: RM10,000 Total assets: RM6,000,000
Debt ratio: 75% Current ratio: 1.2
(new income)
If Rizqi Haykal Berhad could streamline operations, cut operating costs, and raise net income to
RM300,000 without affecting sales or the balance sheet (the additional profits will be paid out as
dividends), by how much would its return on equity (ROE) increase?
ROE = Net Income/Total Equity
Under capital structure – Debt and Equity
If Debt ratio = 75% so Equity ratio is = 25%

Equity = 0.25(RM6,000,000) = RM1,500,000 Debt Equity = 100% (Asset)


75% 25% Capital structure
Net Income Step 1: Find Equity
ROE =
Total Equity

RM240,000
Current ROE = = 16%. Step 2: Find Current ROE
RM1,500,000

RM300,000 Step 3: Find New ROE


New ROE = = 20%.
RM1,500,000

Changes of ROE = 20% - 16% = 4%. Step 4: Find Changes


4. Ashiteru Berhad has a current ratio = 1.6, and a quick ratio equal to 1.2. The company has RM2,000,000
in sales and its current liabilities are RM1,000,000. What is the company’s inventory turnover ratio?

Method 1 Sales/Inventory
Quick Ratio = (Current Assets - Inventory)/Current Liabilities
1.2 = (CA - I)/RM1,000,000
CA - I = RM1,200,000. Step 1: Find inventory
CA I I
Current Ratio = (Current Assets - Inventory + Inventory)/Current Liabilities
1.6 = (RM1,200,000 + Inventory)/RM1,000,000
RM1,600,000 = RM1,200,000 + Inventory
Inventory = RM400,000.
Step 2: Find inventory turnover
Inventory Turnover = Sales/Inventory
Inventory Turnover = RM2,000,000/RM400,000
Inventory Turnover = 5x

Method 2
Current Ratio = Current Asset / Current Liabilities
1.6 = Current Asset /RM1,000,000
Current Asset = RM1,600,000

Quick Ratio = (Current Assets - Inventory)/Current Liabilities


1.2 = (RM1,600,000 - Inventory)/ RM1,000,000
RM1,200,000 = RM1,600,000 – Inventory
Inventory = RM1,600,000 – RM1,200,000 = RM400,000

Inventory Turnover = Sales/Inventory


Inventory Turnover = RM2,000,000/RM400,000
Inventory Turnover = 5x

5. Rizhaida Sdn Bhd has a total debt ratio of 0.70, total debt of RM265,000 net income of RM24,850. What
is the company’s return on equity (ROE)? The average return on equity (ROE) for the industry is 15%.
Does the Rizhaida Sdn Bhd performance appear too high or too low? Explain.
Total debt
Debt ratio = ROE = Net Income/Total Equity
Total assets
Step 1: We should find Total Equity
0.70 = 265,000/Total assets
Step 2: We know Total asset = Total debt +
Total assets = RM378,571.43 Total Equity
x 0.3
Total liabilities and equity is equal to total assets. Using this relationship, we find:
Total assets = Step 3: We can find total assets from
Total liabilities and equity = Total debt + Total equity
debt ratio given
378,571.43 = 265,000 + Total equity
Total equity = RM113,571.43
Step 4: We can find total equity
from Step 4
Net Income
Return on equity (ROE) = = 24,850 /113,571.43 = 0.2188 @ 21.88%
Total equity
High and satisfactory. Step 5: Find ROE
Higher than market: Good

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