INSTITUTE OF BANKERS DIPLOMA IN BANKING, FINANCE AND CREDIT

Transcription

1 INSTITUTE OF BANKERS COURSE: MODULE: DIPLOMA IN BANKING, FINANCE AND CREDIT Analysing Financial Statements MODULE CODE: DAFS 2000 TOTAL MARKS: 100 EXAMINER: MODERATOR(S): N.P. Uzera Albert M Matongela INSTRUCTIONS: ASSIGNMENT 2 ANSWER ALL QUESTIONS. START EACH QUESTION ON A NEW PAGE. LEAVE YOUR ANSWERS TO TWO DECIMAL PLACES WHERE NECESSARY WRITE NEATLY AND CLEARLY 1

2 Dear Student, Welcome to Institute of Bankers (IOB) and especially to Analysing Financial Statements course. I trust that you will find this course very exciting. I would like to advice you that in order to get started with this course; you should develop a love for numbers and calculations. It is our mission to offer you a course of good standard, to construct a good support system, a positive environment and to help build your characters so that you all become well educated, honest and dedicated young adults. As a Student of this particular course, it is important for you to: Attend all classes. Communicate (by phone, in writing or in person) with myself and other students pursuing the course with regard to any problems you may encounter in this course. Dedicate enough time to the preparation of this course. Do the assignments yourselves as well as the problems at the end of each unit in your study guide. Closing remarks If you study diligently, your efforts will be rewarded. Should you need any assistance or clarification, we can be reached anytime at the numbers indicated below. Be assured of our unwavering interest in your academic development. "If we take care in the beginning the end will take care of itself" Norman Vincent Peale, 1988 Nehemia Puuaapo Uzera Institute of Bankers (IOB) npuzera@gmail.com Mobile: Tutor/Maker 2

3 ASSIGNMENT 2 DUE DATE: 13 th April 2018 MARKS: 100 FIRST SEMESTER ANALYSING FINANCIAL STATEMENTS (DAFS 2000) Question 1 [20 Marks] Choose the letter that best answers the question. (2 Marks for each question) 1.1 Which ratio is considered as safe margin of solvency? a) Liquid ratio b) Quick ratio c) Current ratio 1.2 The ideal level of current ratio is a) 4:2 b) 2:1 c) Both a and b 1.3 Current ratio is stated as a crude ratio because a) It measures only the quantity of current assets b) It measures only the quality of current assets c) Both a and b d) Offerings dimension 1.4 The ideal level of liquid ratio is a) 3:3 b) 4:4 c) 5:5 d) All of the above 1.5 Debt-equity ratio is a sub-part of a) Short-term solvency ratio b) Long-term solvency ratio c) Debtors turnover ratio 3

4 1.6 Liquid assets is determined by a) Current assets-stock-prepaid expenses b) Current assets +stock+ prepaid expenses c) Current assets +Prepaid expenses 1.7 Which of the following is not included in current assets? a) Debtors b) Stock c) Cash at bank d) Cash in hand 1.8 Higher the ratio, the more favorable it is, doesn t stands true for a) Operating ratio b) Liquidity ratio c) Net profit ratio d) Stock turnover ratio 1.9 The most precise test of liquidity is a) Quick ratio b) Current ratio c) Absolute Liquid ratio 1.10 Collection of debtors a) Decreases current ratio b) Increases current ratio c) Has no effect on current ratio 4

5 Question 2 [40 Marks] Assets Current Assets Balance Sheet ($ in Millions) 2015 Liabilities and Owners' Equity Current Liabilities 2015 Cash 500 Accounts Payable 500 Accounts Receivable 200 Notes Payable 400 Inventory 700 Total Current Liabilities Total Current Assets Fixed Assets Property, Plant, and Equipment Less Accumulated Depreciation 1400 Long-Term Liabilities 900 Long-Term Debt 800 Total Long-Term Liabilities 1900 Owners' Equity Common Stock ($1 Par) 400 Net Fixed Assests 1400 Capital Surplus 600 Retained Earnings 100 Total Owners' Equity 1100 Total Assets 2800 Total Liab. and Owners' Equity 2800 Income Statement ($ in Millions) 2015 Sales 5300 Cost of Goods Sold 500 Administrative Expenses 200 Depreciation 451 Earnings Before Interest and Taxes 4149 Interest Expense 90 Taxable Income 4059 Taxes 655 Net Income 3404 Dividends 2383 Addition to Retained Earnings Other Information Number of Shares Outstanding (Milions) Price per Share 1.45 Based on the above Balance Sheet and Income Statement calculate and interpret the following ratio s: 2.1 Debt Ratio (4) 2.2 Debt-Equity Ratio (4) 2.3 Operating Profit Margin (4) 2.4 Gearing ratio (4) 2.5 Interest cover ratio (4) 2.6 Earnings per share (4) 2.7 Dividend per share (4) 2.8 Dividend yield (4) 2.9 Price-earnings ratio (4) 2.10 Earnings yield (4) 5

6 Question 3 [40 Marks] A firm has the following financial ratios for the past year: Type of Ratio Ratio Industry average 3.1 Current ratio Quick ratio Debt ratio 30% 40% 3.4 Debt-equity ratio 20% 35% 3.5 Earnings per share (EPS) 82 cents 108 cents Evaluate the ratios for the above-mentioned firm by interpreting each ratio and suggesting appropriate courses of action. ~THE END~ 6