SP Jain Center of Management, Dubai/Singapore

Advanced Financial Statement Analysis

Q1. The Financial Statement for ABC Systems is given below:

2002 2003

Assets :

Current Assets:

Cash and Equivalents 210 248

Accounts Receivables 474 513

Inventory 520 564

------- -------

Total Current Assets 1204 1325

Gross Fixed Assets 2501 2850

ACC DEPN (604) (784)

Net Fixed Assets 1897 2066

--------- --------

Total Assets 3101 3391

Liabilities

Current Liabilties

Accounts Payable 295 317

Notes Payable 300 310

Accrued Taxes 76 99

Total Current Liabilities 671 726

Long Term debt 1010 1050

Common Stock 50 50

Additional Paid in Capital 300 300

Retained earnings 1070 1265

Total Shareholder Funds 1420 1615

Total Liabilities 3101 3391

Statement of Income ( 2003)

Total Revenues: 2215

Operating Costs and Expenses: 1430

EBITDA 785

Depreciation 180

EBIT 605

Interest Expense: 130

Income Before Tax 475

Net Income : 285

Dividends 90

Retained Earnings 195

Q1. Find Out the

i) Operating, Investing and Financing Cash Flows , beginning from opening cash and matching it to ending cash balances.

ii) ROE and carryout a Dupoint Analysis

iii) ROC and Prove the Relationship between ROE & ROC using actual data.----- 5+3+2= (10 MARKS)

(FOR ROE & ROC use Average Capital. )

Q2. Briefly discuss the following:

i) PE Multiple and its determinants

ii) P/BV multiple and establish its relationship with EVA

iii) EBITDA multiple and why EBITDA multiple is preferred over PE multiple in relative valuation

(3 X3 = 9 Marks)

Q3. NB Manufacturing has a current stock price of $49.86. It also has a Price to Book Value of 3.57 and a Book Value per share of $13.97. The following facts &assumptions are given to you:

ROE= 20% Ke= 9.4% Growth Rate : 6% ( Constant Growth Rate)

What’s the fundamental P/BV?

ii) Given the growth rate of 6% what’s the ROE required to justify the P/BV of 3.57. What’s the impact on Free Cash Flow with this ROE?

iii) Given the ROE of 20%, What’s the Growth required to justify a P/BV of 3.57? What’s the impact on Free Cash Flow with this growth and ROE OF 20%?—2+2+2=6MARKS

Q4. The following data appears on the cash flow statement of a company ABC for the year 2003:

Capital investments: 12,50,500

PAT 9,17,500

Depreciation: 16,13,000

The other information available to you is:

Gross Plant Property & Equipment 31/03/2002: 84,31,500

Gross Plant ,Property & Equipment , 31/03/2003: 84,30,000

Accumulated Depreciation 31/03/2003 : 38,74,000

During the year the Company also got rid of a fully depreciated equipment

i) Find out the gross value of the equipment that the company got rid off.?

ii) Find out the change in the Net PPE for the current year--- (2.5 x 2= 5 marks)

Q5 Using the following information , complete the Balance Sheet

Long –term debt to net worth: 0.5:1

Total Asset Turnover: 2.5: 1

Average Collection period : 18 days ( Assuming 360 days)

Inventory Turnover: 9 times

Gross Profit Margin: 10%

Acid Test Ratio : 1:1

For receivables turnover the driver is sales and for inventory turnover the driver is COGS.

Common Stock: 100,000 Property , Plant & Equip: --------

Retained Earnings: 100,000 Inventory:-------

Long- Term Debt : ------- Accounts Receivable:---------

Current Liabilities: 100,000 Cash : ----------- -5 marks