Intended learning outcomes:
1. Evaluate the performance of a company using various financial analytical tools.
2. Analyse different patterns of cost behaviour and apply cost-volume-profit analysis to business decisions.
3. Select and apply investment appraisal techniques appropriately.
4. Evaluate the performance of business units using both financial and non-financial measures.
Q1. Sultan Investments has employed you to evaluate the financial performance of two companies listed in the Muscat Securities Market (MSM) by taking into consideration the following instructions.
Instructions:
a. Select two companies preferably from the same industry or sector (Other than Banking and Investment companies).
b. Collect financial reports of any two companies for two consecutive years.
c. Use annual financial statements for analysis. Avoid using quarterly statements.
d. Provide references for the data collected (use Coventry Harvard style of referencing). Company websites can also be used for data collection.
e. From the financial statements and additional information collected, complete the below mentioned tasks.
TASKS
1. Compute the following ratios for each year for two companies.
a. Liquidity Ratios
b. Profitability Ratios
c. Efficiency Ratios
d. Capital Structure Ratios (Gearing)
e. Market Ratios (dividend, PE etc.)
2. Based on the above computations and literature review; analyze the liquidity, profitability and efficiency position of the two companies. Which company is in a better financial position and why?
3. Based on the gearing and market ratios and other information available in the financial statements along with literature review, would you recommend buying these companies shares? Justify your recommendation.
Q2. Saud Bawan LLC is considering selecting one of the projects to be implemented to improve their revenues. They are providing details of the three projects to you and the rate of investment is assumed at 10%.
|
Particulars
|
Project A
|
Project B
|
Project C
|
|
Initial Cost
|
20,000
|
40,000
|
80,000
|
|
Year 1
|
8,000
|
7,000
|
31,000
|
|
Year 2
|
8,000
|
13,000
|
32,000
|
|
Year 3
|
5,000
|
16,000
|
30,000
|
|
Year 4
|
3,000
|
15,000
|
27,000
|
a. Evaluate the projects using Net present value method and Pay-back period method.
b. Based on the above evaluation and literature reviews, recommend one project and justify your suggestion.
c. Discuss the role of non-financial factors in investment appraisal decision making.
Q3: The following data is provided from the records of Sohar plastics LLC. The company is undergoing benchmarking exercise hence certain changes are suggested,
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Details
|
Per unit (RO)
|
|
Materials
|
16
|
|
Conversion cost (variable)
|
12
|
|
Dealer's margin (10% of sales)
|
4
|
|
Selling price
|
40
|
|
Fixed cost
|
500,000
|
|
Present sales
|
90,000 units
|
|
Capacity utilisation
|
60%
|
a. The following suggestions are to be considered,
i. Reducing sales price by 5%
ii. Increasing dealer's margin by 25% of the existing rate.
b. Which of the two suggestions would you recommend if the company desires to maintain the present profit? Justify your suggestions.
c. Critically discuss the role of break-even point in decision making.