INSTITUTE OF BANKERS DIPLOMA IN BANKING, FINANCE AND CREDIT

Size: px

Start display at page:

Download "INSTITUTE OF BANKERS DIPLOMA IN BANKING, FINANCE AND CREDIT"

Brett Jackson
5 years ago
Views:

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 ASSIGNMENT 3 INSTRUCTIONS: ANSWER ALL QUESTIONS.

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 ASSIGNMENT 3 INSTRUCTIONS: 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 3 DUE DATE: 17 August 2018 MARKS: 100 SECOND SEMESTER ANALYSING FINANCIAL STATEMENTS (DAFS 2000) Question 1 [20 Marks] State whether each of the following statements are true or false. (2 Marks for each question) 1.1 Financial statements that reflect financial data for two or more periods are often referred to as comparative statements. 1.2 Generally, the first concern of a financial analyst is a firm s liquidity. 1.3 The working capital ratio is regarded as a fundamental measurement of a company s liquidity. 1.4 The acid-test ratio is regarded primarily as a measure of a company s long-term liquidity situation. 1.5 Average receivables may also be expressed in terms of the number of days sales in receivables. 1.6 The receivable position and the approximate collection time may be evaluated by computing the accounts receivable turnover. 1.7 Normally a relatively low inventory turnover is desirable. 1.8 The ratio of the net sales to total sales is often called the profitability ratio. 1.9 Return on investment (ROI) is a measure of overall asset productivity

4 The use of borrowed funds is known as trading on the equity. Question 2 [20 Marks] Choose the letter that best answers the question. (2 Marks for each question) 2.1 Five areas that financial ratios concentrate on are: a) liquidity, profitability, debt, efficiency, market related; b) profitability, strategy, liquidity, auditing, share prices; c) liquidity, current ratio, quick ratio, interest cover, dividend cover; d) market related, share prices, dividend policy, debt policy, strategy; 2.2 Ratios that measure the ability of the company to pay its short-term debts are called: a) debt ratios; b) cover ratios; c) liquidity ratios; d) profitability ratios; 2.3 Current assets divided by current liabilities is the definition of the: a) interest cover ratio; b) dividend cover ratio; c) quick ratio; d) current ratio; 2.4 The quick ratio is defined as: a) current assets divided by current liabilities; b) current assets divided by total debt; c) current assets less inventory, divided by total liabilities; d) current assets less inventory, divided by current liabilities; 2.5 Return on sales, return on assets and return on equity are examples of: a) liquidity ratios; b) profitability ratios; 4

5 c) debt ratios; d) efficiency ratios; e) market-related ratios. 2.6 Return on assets is defined as: a) operating income divided by owners equity; b) operating income divided by sales; c) operating income divided by total assets; d) operating income divided by long-term assets plus debt; 2.7 Net income divided by shareholders equity is the definition of: a) return on sales; b) return on assets; c) return on equity; d) asset turnover; 2.8 The debt to equity ratio measures; a) the likelihood of the company going bankrupt in the short term; b) the efficiency of the company; c) the relative proportions of debt and equity in the capital structure; d) liquidity; 2.9 The interest cover ratio measures: a) the leverage of the company; b) the efficiency of debt; c) the weighted average cost of capital; d) the relationship between interest and profit; 2.10 Total asset turnover, receivables turnover and inventory turnover ratios measure: a) liquidity; b) profitability; c) efficiency; d) debt; 5

6 e) market related factors. Question 3 [40 Marks] Assets Current Assets Balance Sheet ($ in Millions) 2015 Liabilities and Owners' Equity Current Liabilities 2015 Cash 300 Accounts Payable 300 Accounts Receivable 400 Notes Payable 500 Inventory 200 Total Current Liabilities Total Current Assets Fixed Assets Property, Plant, and Equipment Less Accumulated Depreciation 900 Long-Term Liabilities 800 Long-Term Debt 700 Total Long-Term Liabilities 1800 Owners' Equity Common Stock ($1 Par) 500 Net Fixed Assests 1500 Capital Surplus 300 Retained Earnings 100 Total Owners' Equity 900 Total Assets 2400 Total Liab. and Owners' Equity 2400 Income Statement ($ in Millions) 2015 Sales 5100 Cost of Goods Sold 2800 Administrative Expenses 300 Depreciation 201 Earnings Before Interest and Taxes 1799 Interest Expense 130 Taxable Income 1669 Taxes 537 Net Income 1132 Dividends 444 Addition to Retained Earnings Other Information Number of Shares Outstanding (Milions) Price per Share 3.85 Based on the above Balance Sheet and Income Statement calculate the following ratios: 3.1 Gross Profit Margin (4) 3.2 Net Profit Margin (4) 3.3 Return on Assets (4) 3.4 Return on Equity (4) 3.5 Inventory Turnover (4) 3.6 Average Collection Period (Assume a 360 days year) (4) 3.7 Average Payment Period (Assume credit purchase amounted to $1200 and is 360 days year) (4) 3.8 Current ratio (4) 3.9 Quick (acid-test) ratio (4) 6

7 3.10 Net Working Capital (4) Question 4 [20 Marks] Using your own words, explain the meaning of the following terms: 4.1 Financial Statement Analysis (4) 4.2 Income Statement (4) 4.3 Balance Sheet (4) 4.4 Generally accepted accounting principles (GAAP) (4) 4.5 Financial Statements Footnotes (4) ~THE END~ 7

INSTITUTE OF BANKERS DIPLOMA IN BANKING, FINANCE AND CREDIT

INSTITUTE OF BANKERS DIPLOMA IN BANKING, FINANCE AND CREDIT 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