Finanacial management I max point 20%
Submission date January 19,2022
Group assignment NB –maximum member of the group are five
A. Explain the following Questions
1. Explain the need for performance evaluation
2. Explain the different types of ratio analysis
3. Are liquidity ratios sufficient to show the "True" liquidity of the firm? Why?
4. Discuss the major problems that could be faced in financial ratio analysis.
B. Workout Questions
1. The only current asset possessed by a firm are: Cash birr 105,000, Inventories birr 560,000
and Accounts Receivable birr 420,000. If the current ratio for the firm is 2:1, determine its
current liabilities and calculate the firm's quick ratio
2. At the close of the year a company has inventory of birr 150,000 and cost of goods sold for
birr 975,000. If the company's turnover ratio is 5, determine the opening balance of the
inventory
3. Assume that the industry average of fixed asset turnover of MITU Manufacturing
Company is 2.50 times and the total asset turnover is 2 times. Net sales for the year is
250,000 and 95% of the total assets of the organization is fixed. Assume further that the
production manager requests additional fund for the purchase of fixed assets that he
thinks could increase the profitability of the company. Given no impact of depreciation,
and if you are the financial manager of MITU Manufacturing Company, what should be
your reaction towards this proposal? Why?
4. Complete the following financial statements of Omega Company on the basis of the
ratios given below.
Omega Company
Profit and loss account
For the year ended June 30 2001
2,000,000 Sales
600,000 Cost of Goods Sold
1,400,000 Gross Profit
1,190,000 Operating Expenses
- Earning Before Interest and Tax
10,000 Debenture Interest
- Income Tax
- Net Profit
Omega Company
Balance sheet
For the year ended June 30 2001
Liabilities Assets
60,000 Sundry creditors - Cash
- 10% Debentures - Stocks
- Total liabilities 35,000 Debtors
- Reserve and Surplus - Total Current Assets
- Share Capital - Fixed Assets
- Total Liability and Equity - Total Assets
Additional Information
A. Net Profit to Sale…………….. 5% D. Inventory Turnover …………. 15 times
B. Current Ratio………………… 1.5 E. Share Capital to Reserve…….. 4:1
C. Return on Net Worth ……….. 20 % F. Tax Rate…………………….. 50 %
