CONFIDENTIAL 1 AC/JUL 2021/FAR670

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : FINANCIAL STATEMENT ANALYSIS

COURSE CODE : FAR670
EXAMINATION : JULY 2021
TIME : 2 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of three (3) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of :

i) the Question Paper

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 4 printed pages
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CONFIDENTIAL 2 AC/JUL 2021/FAR670

QUESTION 1

The comparative financial data of SMHS Berhad for 31 December 2019 and 2020 are
presented below:

Statement of Financial Position as at 31 December 2020

2019 2020
RM RM
ASSETS
Current assets
Cash and equivalents 1,826,000 1,890,000
Short-term marketable securities 50,000 64,000
Accounts receivable 2,020,000 2,720,000
Inventory 5,486,000 5,201,000
Prepaid expenses and other current assets 1,100,000 975,000
Total current assets 10,482,000 10,850,000

Property, plant and equipment, net. 4,070,000 4,210,000

Intangible assets 890,000 950,000
Total assets 15,442,000 16,010,000

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Accounts payable 6,182,000 6,390,000
Total current liabilities 6,182,000 6,390,000

Long term loan 2,360,000 2,210,000

Total Liabilities 8,542,000 8,600,000

Total shareholders‘ equity 6,900,000 7,410,000

Total liabilities and shareholders’ equity 15,442,000 16,010,000

Required:

a. Prepare a vertical common-size statement for both years above using total assets as
the base measure.
(8 marks)

b. Based on your analysis in (a) above, determine the type of industry of the company
and explain your choice.
(6 marks)

c. Various techniques are used in the analysis of financial data to emphasize the
comparative and relative importance of the data presented and to evaluate the
position of the firm.

In relation to this statement, explain the use of common-size analysis. You have to
include 2 advantages and 2 disadvantages of common-size analysis.
(20 marks)
(Total: 34 marks)
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CONFIDENTIAL 3 AC/JUL 2021/FAR670

QUESTION 2

a.
2020 2019 Industry
Accounts receivable turnover in days 28.5 days 23 days 20 days
Inventory turnover in days 73 days 58 days 60 days
Current ratio 2.00 2.50 2.50
Acid-test ratio 0.70 1.10 1.30

Required:

i. Evaluate the trend of the company above with regards to the short-term
liquidity.
(8 marks)

ii. Discuss when the acid-test ratio would be preferred over the current ratio.
(7 marks)

b. Below is the extract financial data for te year ended 2020 for Les Ardan Bhd:

RM
Bonds payable, 12% 1,500,000
Shareholders’ equity 1,800,000
Current assets 1,670,000
Net Property, Plant and Equipment 1,640,000
Investments 210,000
Sales 4,100,000
Operating expenses 3,610,000

Required:

i. Assess the solvency position of the company and its implication on the debt-
paying ability. Show your calculation to support.
(10 marks)

ii. To evaluate the adequacy of coverage using TIE, do you think the information
provided for the year 2020 is sufficient? Explain your answer.
(5 marks)
(Total: 30 marks)

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CONFIDENTIAL 4 AC/JUL 2021/FAR670

QUESTION 3

A. The analysis of profitability ratios and capital structure for MIB Berhad are as follows:

2020 2019 2018 2017 2016

Operating Income Margin 26.0% 30.8% 22.1% 20.6% 20.1%
Net Profit Margin 10.3% 14.9% 5.10% 1.75% 1.04%
Total Asset Turnover 23% 22% 21% 19% 18%
Return on Total Assets 2.4% 3.3% 1.1% 0.3% 0.2%
Return on Equity 5.8% 8.1% 2.7% 0.8% 0.5%
Earning per Share (cent) 28.90 40.37 10.82 0.94 (1.09)
Price/Earning Ratio 26.3 20.8 81.2 644.7 (514.7)
Dividend per Share (cent) 15.0 14.0 13.0 10.0 8.5
Dividend Payout Ratio 52% 52% 55% 56% 58%
Dividiend Yield 1.97% 1.67% 1.48% 1.65% 1.62%
Market Price per Share (RM) 7.60 8.38 8.79 6.06 5.61

Required:

i. Evaluate the operating profit trends of the firm and briefly suggests one
possible reason for the results in 2020.
(8 marks)

ii. Evaluate the firm’s ability to utilize its assets to create profits for the year 2020
in comparison to other years.
(5 marks)

iii. Using DuPont analysis, explain the causes for the decrease in the percentage
of return on assets in 2020 in comparison to the year 2019.
(8 marks)

iv. Briefly explain the reason for changes in the following:

a. Changes in dividend yield from 1.67% in 2019 to 1.97% in 2020.

(6 marks)

b. Changes in P/E ratio from 20.8 in 2019 to 26.3 in 2020.

(5 marks)

v. Do you agree or disagree with the following statement. “Higher P/E ratio is
2020 indicates the investors view the company has high growth
opportunities”. Explain your answer
(4 marks)
(Total: 36 marks)

END OF QUESTION PAPER

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