1) Write down and briefly explain the tasks that a financial manager is supposed to perform. 2) Financial planning begins with financial statement analysis. Comment on this statement. 3) Briefly explain how financial plans are prepared.

4) Briefly explain why long term assets are strategically important.

5) Critically compare short term assets and long term assets.

6) Briefly explain capital budgeting.

7) Critically compare short term liabilities with long term liabilities.

8) Explain how capital structure affects a companys liquidity and riskiness.

9) What are the financial objectives of a business?

10) Explain why there is a reverse relationship between liquidity risk and profitability with an example.

11) Explain how low liquidity is risky for companies.

12) Explain how capital structure can affect the liquidity risk.

13) Explain how companies can grow by using the financial leverage.

14) Why must companies purchase assets? What points are important while making purchasing decisions?

15) Company A earned net income of 50, company Bs net income is 80. Company B is more profitable. Do you agree with this? Why or Why not? Explain.

16) What is ratio analysis? How are they used in financial analysis?

17) Briefly explain the liquidity ratios? For what purpose do they serve?

18) What can you say if the current ratio of a firm is 8.23 and industry average is 2.65? 19) Why are inventories less liquid than receivables?

20) Briefly explain the purpose of asset management ratios. Inventory turnover of a company is 6.78. What does that mean?

21) What can you say if asset turnover ratios are higher as compared to the industry averages?

22) Briefly explain the profitability ratios.

2 3) What can you say if the net profit margin on sales ratio is 7.85%?

24) Classify the sources of funds. What can you say if the debt ratio of a company is 48%? 25) How can a company increase its profitability by financial leverage? Give a simple example. 26) How can a company increase its return on assets?

27) What can you say about the capital structure of a firm if its TIE ratio is fairly low?

Short Exercises

1) Calculate the inventories if the current ratio of a company is 2.37 and quick ratio is 1.23 and current liabilities are 3850000 KZT.

2) Current ratio if a company is 3.54. Current liabilities of the company are 2650000 KZT. Company would like reduce its current ratio to 3.22 by increasing its inventories using short term bank loans. How much must the company borrow?

3) Assume a companys net income is 200 KZT on sales of 1200 KZT. Companys total assets amount to 3400 KZT and debt ratio is 47%. Calculate the return on equity.

4) Assume a companys debt ratio is 35% and Return on Assets is 12.83%. Net income is 6300KZT. Calculate the equity capital.

5) A companys inventory turnover is 8.15. Average inventory was 2878 KZT. Gross profit margin on sales ratio was 62%. Calculate sales for the year.

6) Average collection period of a company was 42.48 days. Inventory turnover was 7.15 and average inventory on hand was 3641 KZT, and gross profit margin was 55%. Calculate the accounts receivables for the year.

7) A companys current, quick and inventory turnover ratios are 3.2, 1.9 and 6.7 times. . Cash and cash equivalents are 1400 KZT and current assets are 6400 KZT. Calculate the net sales and average collection period if gross profit margin was 73%.

8) Calculate the tax rate when a company has debts outstanding 9000 KZT, interest rate on debts is 10%, operating profit margin 15%, net profit margin is 5% and sales 14000 KZT. Calculate the TIE ratio.

9) Calculate the equity multiplier and equity ratio when debt ratio is 42%.

10) A company has an assets of 4000 and equity multiplier of 1.27. Interest rate on existing debts is 11%. Operating profit margin on sales is 18.5%. Total asset turnover is 2.43. Calculate the companys a) Net Profit Margin on Sales b) Return on Assets c) Return on Equity d) Times Interest Earned, when the corporate income tax rate is 20%.

11) Average collection period of a company is 43 days. Management accepted a new credit policy. According to the new plan average collection period will be reduced to 36 days. Last year credit sales amounted to 9000000 KZT. For next year management estimates the sales to increase by 40 percent. Calculate the average receivables for both current and next years.

12) In 2016 assets of a company were 6300. Return on Assets was 12.5% and Return on Equity was 18%. Annual sales of the company were 17600 and average collection period was 52 days. For 2017, company doesnt expect a change in credit sales. But management developed a new credit plan. According to the new plan DSO is expected to decrease to 35 days. And funds generated through the plan will be used to reduce common equity (shares will be purchased at book value). Calculate the expected return on equity if the plan becomes successful.

13) Financial Ratios and Industry averages for a merchandising company is given below. Ratios Company Industry

Profit Margin on Sales 4.30% 2.10%

Total Assets Turnover Ratio 1.40 4.35

Return on Assets 6.02% 9.14%

Debt Ratio 63.00% 43.00%

Return on Equity 16.27% 16.03%

Companys ROE is close to the industry average. Managers want to improve the companys profitability above the industry average. What will you suggest? (Hint: Remember the elasticity)

14) Please check the company and industry ratios given below. What can you say about the capital structure of the firm?

Ratios Company Industry

Gross Profit Margin on Sales 70% 65%

Operating Profit Margin on Sales 32% 28%

Net Profit Margin on Sales 5% 12%

15) Balance sheet and income statement accounts, and ratios of Kostanay Trading Company are given below.

Average interest on debt 12.00% Net Profit Margin on Sales 6%

DSO 30 days Tax Rate 0.30

Gross Profit Marin on Sales 65% ROE 16%

Inventory Turnover 5.25 times Current Ratio 2.5 times

Sales 15000 Operating Expenses 8179 KZT

ASSETS LIABILITIES AND EQUITY

Cash 1000 STL ?

A/R ? LTL ?

Inventory ? Equity ?

Fixed Assets 4750

Total Assets ? Total Liabilities and Equity ?

Complete the balance sheet using the information above.

16) A companys profit margins and industry averages compared below.

Company Industry

Gross Profit Margin on Sales 42% 40%

Operating Profit Margin on Sales 18% 17%

Net Profit Margin on Sales 6% 14%

What can you say about companys capital structure? Just make a verbal estimation about the liquidity of the company. If return on assets of company and industry are equal, what can you say about the total assets turnover and return on equity?

Exercises

1) Carefully analyze the following transactions and then indicate their effects on current ratio, debt ratio, net income, ROE and ROA. Use (+) to indicate an increase, (-) to indicate a decrease, and (0) to indicate either no effect or an indeterminate effect. Initial current ratio is greater than 1.0 (Suggestion: For every transaction prepare the journal entry first. Then show the effect on balance sheet. Try to determine the changes on current assets and liabilities, total liabilities, total assets and equity.)

#

TRANSACTIONS

Current

Ratio

Debt

Ratio

Net

Income

ROA

ROE

1

Company exchanged existing bonds with new Common Stock

2

Company issued new Common Stock in cash

3

Company sold inventory on credit

4

Company sold inventory in cash

5

Wages Payable is paid in cash

6

A long term assets is sold at a gain

7

A long term assets is sold at a loss

8

Accounts payable is paid

9

Company paid out dividends

10

Cash is acquired through bonds

11

Cash is acquired through short term bank loans

12

Company purchased a one year insurance policy

13

Salaries are paid for month

14

Company purchased inventory in cash

15

Company purchased inventory on credit

16

Accounts receivable is collected

17

A long term asset is purchased in cash

18

A long term asset is purchased on mortgages

19

Company received the telephone bill for month

2) Data for Zhasyr Mebel Company and industry averages follow: a) Calculate the indicated ratios for Zhasyr.

b) Construct the DuPont equation for both Zhasyr and Industry.

c) Make a list of strengths and weaknesses as revealed by your analysis.

ZHASYR MEBEL COMPANY

BALANCE SHEET

Cash 75000 Accounts Payables 65000 Accounts Receivables 145000 Accruals 71000 Inventory 153000 Notes Payables 42000 Total Current Assets 373000 Total Current Liabilities 178000 Land 150000 Bonds Payables 200000 Machinery (net) 150000 Mortgage Payables 97000 Equipment (net) 127000 Total Liabilities 475000 TOTAL ASSETS 800000 Common Stock 250000 Retained Earnings 75000

Total Liabilities and Equity 800000

Zhasyr

ZHASYR MEBEL COMPANY RATIO

Mebel Industry

INCOME STATEMENT Current Ratio 3.1 Sales 1756000 Quick Ratio 1.41 -

Cost of Goods Sold

1264320 Days Sales Outstanding 29.73

Gross Profit 491680 Inventory Turnover Ratio 4.41 Operating Expenses -245840 Total Assets Turnover Ratio 2.2 Earnings Before Interest and Tax 245840 Times Interest Earned (TIE) 3.59

Interest Expenses -66500 Profit Margin on Sales 5.91% Earnings Before Tax 179340 Debt Ratio 55.00% Tax (35%) -62769 Return on Assets 12.97% Net Income 116571 Return on Equity 28.83%

3) Balance Sheet and Income Statement of Techno Computers for year 2016 are given below. TECHNO COMPUTERS BALANCE SHEET, in 000KZT

Cash 34 Accounts Payables 45

Accounts Receivables 150 Accruals 38

Inventory 150 Notes Payables 120

Total Current Assets 334 Total Current Liabilities 203

Land 250 Bonds Payables 150

Machinery (net) 120 Mortgage Payables 120

Equipment (net) 136 Total Liabilities 473

TOTAL ASSETS 840 Common Stock 250

Retained Earnings 117

Total Liabilities and Equity 840

TECHNO COMPUTERS

INCOME STATEMENT, in 000 KZT RATIOS Techno Industry Sales 1920 Current Ratio 1.71 Cost of Goods Sold -1440 Quick Ratio 0.79 Gross Profit 480 Days Sales Outstanding 18.75 Operating Expenses -369.6 Inventory Turnover Ratio 8.15 Earnings Before Interest and Tax 110.4 Return on Equity 22.85% Interest Expenses -66.22 Gross Profit Margin on Sales 30.00% Earnings Before Tax 44.18 Fixed Assets Turnover Ratio 3.60 Tax (25%) -

11.045 Total Assets Turnover Ratio 2.29

Net Income 33.135 Operating Profit Margin 9.90% Profit Margin on Sales 5.24%

Debt Ratio 47.62%

Return on Assets 11.97%

a) Calculate the indicated ratios for Techno.

b) Make a short comment on every ratio and compare them with industry averages. c) Construct the DuPont equation for both Techno and Industry.

d) Make a list of strengths and weaknesses as revealed by your analysis.

e) Based on your analysis, write a short paragraph about your suggestions to the company managers.

5) Mr. Erkin Artykbayev was thoughtful about the companys financial performance in 2016. He decided to ask for assistance from you. Financial statements of 2016 and industry averages are below:

ARTYKBAY HOME TEXTILE

BALANCE SHEET

Cash 258000 Accounts Payables 856000

Accounts

Receivables 956000 Accruals 188000

Inventory 1966000 Notes Payables 222000

Total Current Assets 3180000 Total Current Liabilities 1266000

Land 1320000 Bonds Payables 1150000

Machinery (net) 1850000 Mortgage Payables 860000

Equipment (net) 1650000 Total Liabilities 3276000

TOTAL ASSETS 8000000 Common Stock 2568000

Retained Earnings 2156000

Total Liabilities and Equity 8000000

ARTYKBAY HOME TEXTILE

INCOME STATEMENT Artykbays Industry Sales 6529000 Current Ratio 2.51 Cost of Goods Sold -4570300 Return on Assets 13.51% Gross Profit 1958700 EBIT to Assets 24.48% Operating Expenses -1305800 Days Sales Outstanding 38.60 Earnings Before Interest and Tax 652900 Inventory Turnover Ratio 1.58 Interest Expenses -458640 Cost of Goods Sold to Sales 50.00% Earnings Before Tax 194260 Operating Profit Margin 30.00% Tax (25%) -48565 Profit Margin on Sales 16.56% Net Income 145695 Debt Ratio 46.18% Return on Equity 25.11%

EBT to Equity 33.48%

Times Interest Earned (TIE) 3.79

a) Calculate the indicated ratios for Artykbay Home Textile Co,

b) Make a short comment on every ratio and compare them with industry averages. c) Construct the DuPont equation for both Artykbay and Industry.

d) Make a list of strengths and weaknesses as revealed by your analysis.

e) Based on your analysis, write a short paragraph about your suggestions to the Mr. Erkin Artykbayev.