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FSAPM Assignment 5

1.  What is corporate governance?

2.  What is intrinsic value?

3.  What do you understand by free cash flows?

4.  What is off-balance sheet financing?

5.  What are the financial analysis tools?

6.  What are contingent liabilities?

7.  What is deferred tax liability?

8.  If operating assets turnover in a company is found to be below the level which you

expect, what you think that the management of the company should have done ?

9.  While analyzing liabilities of a company what exactly you want to know as a prospective

investor? Explain.10. What are the inventory costing (LIFO and FIFO) effects on cash flows?

11. As an analyst why do you treat separately the operating and non-operating items in the

income statement of a company? Take some items as example and explain for your

answer.

12. In the case of a company, the debt equity ratio is 4:1 and 2:1 as per the financial

statements of the years 2009-10 and 2010-11 respectively. What aspects you would

analyze to know about the causes of this change? As a creditor how would you look at

this phenomenon?

Case Analysis

A manufacturing company wishes to expand its business and for that it has approached you

(Chief Manager of a bank branch in Bangalore) for a short term loan of Rs 50 lakh for working

capital purpose and a long term loan of Rs 5 crore to buy the new plant and machinery. Your

subordinates have prepared the following ratios based on the annual reports submitted by the

company. The final decision on the loan application will be taken by your immediate superior,

that is, the Regional Manager. But you can make your own recommendations and comments on

the loan proposal. How would you do that? Your recommendations and comments should

have the support of information emanating from the analysis.

FY 20X4

(12m)

FY 20X3

(12m)

FY 20X2

(18m)

FY 20X1

(18m)

Net Working Capital (Rs in Millions )119.6 134.7 64.4 53.3

Current Ratios5.3 8.7 7.0 5.8

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Quick Ratios2.8 5.2 4.1 3.9

Average Daily Expenses (Rs in Millions)0.9 1.1 0.7 0.6

Cash Cover for Daily Expenses (Days)5.5 3.0 4.3 2.2

Quick Assets Cover for Daily Expenses (Days)81.6 80.5 65.9 72.7

Current Assets Cover for Daily Expenses (Days)157.4 135.9 111.7 107.6

Current Liability Cover for Daily Expenses (Days)29.6 15.5 15.9 18.7

Accounts Receivable Turnover136.6 153.4 157.6 118.7

Average Collection Period (Days)2.7 2.4 2.3 3.1

Inventory Turnover4.9 8.4 9.0 10.0

Inventory Conversion Period (Days)74.0 43.6 40.5 36.4

Average Payable Period (Days)20.1 7.4 6.7 10.6

Total Debt to Total Capital4.7 4.7 5.3 19.1

Long-term Debt to Total Capital4.4 4.5 5.1 18.5

Long-term Debt to Fixed Assets1.1 1.1 1.0 1.1

Interest Cover1.9 4.5 -0.2 -0.2

Times Fixed Charges Covered0.5 0.5 -0.1 -0.1

Net Gain from Borrowed Funds (Rs Millions)8.7 42.7 14.9 18.3

Equity Multiplier5.7 5.7 6.3 20.0

Gross Profit Margin (%) 21.2 15.6 20.1 19.8

Operating Profit Margin (%) 8.4 4.6 -3.2 -4.7

Net Profit Margin (%) 3.2 2.0 -18.1 -22.9

Operating Profit to Operating Assets (%) 6.4 4.8 -2.4 -3.1

Net Income to Total Assets (%) 2.5 2.1 -13.4 -15.0

Return on Equity (%) 14.1 12.5 -130.0 -301.0

Total Asset Turnover 0.8 1.0 0.7 0.7

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Operating Asset Turnover 0.8 1.0 0.7 0.7

Working capital Turnover 3.3 4.6 5.0 4.9

Shareholder Equity Turnover 4.4 6.1 7.2 13.1

Earnings per Share 1.4 0.9 -5.7 -6.5

Dividends per Share (including Dividend Tax) 0.0 0.0 0.0 0.0

Book Value per Share 10.2 8.9 6.6 2.2

Dividend Payout Ratio (%) 0.0 0.0 0.0 0.0

Price-to-Book Value 2.4 1.6 1.6 4.2

Price-to-Earnings 18.5 15.3 -1.8 -1.4

Dividend Yield 0.0% 0.0% 0.0% 0.0%