ASSIGNMENT 1
Question 1
Financial statements of Nimbin Pty Ltd are presented below:
Nimbin P/L
Statement of Financial Position
As at 30 June 2013 and 2014
($000)
2014 2013
Current assets
Cash and cash equivalents $1,645 $2,110
Accounts receivables (all trades) 4,100 3,675
Inventories 7,000 6,930
______ _____
Total current assets 12,745 12,715
______ ______
Non-current assets
Property, plant and equipment 17,190 15,330
_______ ______
Total non-current assets 17,190 15,330
_______ _______
Total assets $29,935 $28,045
======= ======
Current liabilities
Payables $5,780 $5,990
_______ ______
Total current liabilities 5,780 5,990
_______ ______
Non-current liabilities
Interest-bearing liabilities 9,940 9,450
_______ _____
Total non-current liabilities 9,940 9,450
_______ _______
Total liabilities $15,720 $15,440
====== ======
Equity
Share capital $7,700 $7,700
Retained earnings 6,515 4,905
_______ _______
Total equity $14,215 $12,605
====== ======
Nimbin P/L
Income Statement
As at 30 June 2014
($000)
Revenues (net sales) $55,000
Less: cost of sales 35,100
_______
Gross profit 19,900
_______
Less: Expenses
Selling and distribution expenses 7,100
Administrative expenses 4,970
Finance costs 1,560
______
Total expenses 13,630
______
Profit before income tax 6,270
Income tax expense 1,908
______
Profit $4,362
=====
Nimbin P/L
Statement of changes in Equity
For the year ended 30 June 2014
($000)
Share capital
Ordinary (7,200.000 shares)
Balance at start of period $7,200
______
Balance at end of period 7,200
_______
Preference (250,000 shares)
Balance at start of period 500
______
Balance at end of period 500
______
Total share capital $7,700
======
Retained Earnings
Balance at start of period $4,905
Total income for the period 4,362
Dividends paid - ordinary (2,702)
Dividends paid - preference (50)
______
Balance at end of period $6,515
======
Additional information:
Payables include $5,620 (2014) and $5,730 (2013) trade accounts payable; the remainder is accrued expenses. Market prices of issued shares at year-end (2014): Ordinary $12; Preference $6.70.
Required:
A. Calculate the following ratios for 2014. The industry average for similar businesses is shown.
Industry average
1. Rate of return on total assets 22%
2. Rate of return on ordinary equity 20%
3. Profit margin 4%
4. Earnings per share 45c
5. Price-earnings ratio 12.0
6. Dividend yield 5%
7. Dividend payout 70%
8. Current ratio 2.5:1
9. Quick ratio (acid ratio) 1.3:1
10. Receivables turnover 13
11. Inventory turnover 6
12. Debt ratio 40%
13. Times interest earned 6
14. Assets turnover 1.8
B. Given the above industry averages, comment on the company's profitability, liquidity and use of financial gearing.
Question 2
a) A local restaurant is noted for its fine food, as evidenced by the large number of customers. A customer was heard to remark that the secret of the restaurant's success was its fine chef. Would you regard the chef as an asset of the business? If so, would you include the chef on the balance sheet of the business and at what value?
b) Indicate the effect of each of the following transactions on any or all of the three financial statements of a business:
1. Statement of financial position
2. Statement of financial performance
3. Statement of cash flows
Apart from indicating the financial statements (s) involved, use appropriate phrases such as ‘increase total asset', ‘decrease equity', ‘increase income', ‘decrease cash flow' to describe the transaction concerned.
1. Purchase equipment for cash.
2. Provide services to a client, with payment to be received within 40 days.
3. Pay a liability.
4. Invest additional cash into the business by the owner.
5. Collect an account receivable in cash.
6. Pay wages to employees.
7. Receive the electricity bill in the mail, to be paid within 30 days.
8. Sell a piece of equipment for cash.
9. Withdraw cash by the owner for private use.
10. Borrow money on a long-term basis from a bank.