ACC501 Business Finance Assignment No. 01 Solution & Discussion Fall 2014

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ACC501 Business Finance Assignment No. 01 Solution & Discussion Fall 2014 Due Date: December 04, 2014


Question:



Below is the balance sheet and income statement of Mega Corporation for the year ended June 30, 2013.



Mega Corporation



Balance Sheet

As of June 30, 2013



Assets

Rs. (million)



Current Assets


ACC501 - Business Finance Assignment No. 01 Fall 2014 Solution & Discussion Due Date: December 04, 2014



Cash

225



Accounts receivables

310



Inventory

328



Total Current Assets

863



Fixed Assets





Plant and Equipment
7077




Less Depreciation
550
6527



Furniture and Fixture

50



Total Assets

7440


Liabilities and Equity




Accounts payable

308



Notes payable

1427



Total current liabilities

1735



Long term debt

2358



Owner’s Equity




Share capital

1000



Retained Earnings

2347



Total Liabilities and Equity

7440




Mega Corporation

Income Statement

For the year ended June 30, 2013



Particulars

Rs. (millions)





Sales

4053






Cost of goods sold

2780





Depreciation


550




Income before interest and tax

723





Interest paid


502




Taxable income

221




Tax @ 34%

75




Net income

146




Dividends
47





Addition to retained earnings
99




Required:



a. Based on the above financial statements of Mega Corporation, compute the ratios mentioned in the below table and interpret the results of ratios thereof. (20 Marks)







Sr. #
Ratios


1 Current ratio



2 Quick ratio



3 Cash ratio



4 Interest Coverage Ratio



5 Inventory turnover ratio



6 Account receivables turnover



7 Days’ sales in inventory



8 Days’ sales in receivables



9 Total Debt ratio



10 Dividend Payout ratio







Compare your computed result with industry averages given below, thereby indicating


strong and weak areas of Mega Corporation. (5 Marks)







Sr. #
Ratios
Industry Averages



1
Current ratio
2 times



2
Quick ratio
1 times



3
Cash ratio
0.50 times



4
Interest Coverage Ratio
2 times



5
Inventory turnover ratio
7 times



6
Account receivables turnover
14 times



7
Days’ sales in inventory
45 days



8
Days’ sales in receivables
30 days



9
Total Debt ratio
60 percent



10
Dividend Payout ratio
30 percent