BUS5IAF Introduction to Accounting and Finance-Analyse the Firm

Below you will find guidance as to how to answer each question, but it is not recommended that you construct the report in terms of answers to questions.Construct the report as a comprehensive answer to the client’s request that you analyse the financial statements. Each of the 5 tasks should be answered separately, with subheadings, so the client can focus on the parts of the report that are of interest.
1. Calculate the ratios shown, for each of the last three years. Enter the values in the white cells below.
The only way to successfully calculate these ratios is to carefully work through the examples in the online materials (as well as the relevant online exercise). Don’t just look at the formulas. Make sure you can see where the numbers have come from in the worked examples.

2. Analyse the firm's performance over the last 3 years. Identify any strengths or weaknesses, in terms of positive or negative trends.It is recommended that you consider each of the 5 types of ratios separately. Use subheadings. That will make your report easier to read and comprehend. Begin with profitability ratios, and then identify, for each ratio, whether there is a clear upward or downward trend. If there is minimal change, or the figures go up and down, then there isn’t an identifiable trend. Then discuss efficiency ratios, and so on.

3. Analyse the firm's performance in comparison to industry averages for each of the ratios, identifying any apparent strengths or weaknesses. value for each ratio with the industry average, and indicate whether the firm is doing better, worse or about the same as other firms in the industry.
4. Based on your answers to Questions 2 and 3, summarise the firm's performance in terms of profitability, efficiency, liquidity, leverage and potential for investment.

Again, take each of the 5 groups of ratios separately. Give an overall indication of whether the firm is doing will or badly in terms of profitability,based on identifiable trends and by comparison with the industry averages. If all of the ratios indicate strength or weakness, say so. If the story is mixed, so say. Do the same for each category.

You should go a little beyond summarising whether the firm is doing well or badly in terms of each category of ratios. Briefly state what this means for the firm. Is it profitable and efficient in its operations How easy is it for the firm to pay its debts as and when they fall due How much debt does it carry, and how easy is it for the firm to service that debt What do the investment ratios tell you about whether the firm is an attractive investment for investors
5. Briefly explain to the client any possible problems with your analysis that the client should bear in mind.

Answer:

Return on equity	PAT	205	217	250
Return on capital employed	PAT	205	217	250
Operating Profit Margin	Operating Profit	353	366	405
Gross Margin Profit	Gross Profit	1053	1166	1428
Average Inventory turnover Period	COGS	1275	1438	1626
Average settlement period for Account receivable	Net Sales	2328	2604	3054
Average settlement period for Account payable	Net Purchases	1270	1431	1617
Sales Revenue to Capital Employed	Capital Employed	712	727	779
Current Ratio	Current Assets	653	639	632
Acid Test Ratio	Current Assets- Stock	420	413	415
Gearing Ratios	Long term liabilities	1531	1495	1463
Interest Coverage Ratio	Interest	97	95	93
Dividend payout ratio	Total Dividend	154	156	158
Dividend Yield	Cash dividend per share	0.19	0.21	0.23
EPS	PAT	205	217	250
P/E ratio	MPS	1.96	2.26	2.27

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