2 You are interested to invest in Bestari Sdn. Bhd. You are given the following financial statements and relevant historical data of the company to help you in your analysis. Statement of profit or loss for the year ended 31 December 2018 Net sales: RM Cash Credit 4,880,000 10,120,000 Total net sales 15,000,000 Cost of goods sold (7,850,000) Gross profit 7,150,000 Operating expenses (4,850,000) Profit before interest and tax 2,300,000 Finance cost (500,000) Profit before tax 1,800,000 Income tax expense Profit for the year (700,000) 1,100,000 Share Capital Statement of changes of equity for the year ended 31 December 2018 Revaluation Retained Reserve Earnings RM RM RM Balance 1 Jan. 2018 800,000 1,140,000 500,000 Profit for the year 1,100,000 1,600,000 Dividends (70,000) Balance 31 Dec. 2018 800,000 1,140,000 1,530,000 Statement of financial position as at 31 December 2018 Assets Property, plant and equipment, net Inventory RM 4,000,000 1,080,000 Account Receivable, net 2,300,000 Short-term investments 60,000 Cash 260,000 Total assets 7,700,000 Liabilities and Equities Share Capital 800,000 Revaluation Reserve 1,140,000 Retained Earnings 1,530,000 3,470,000 Long-term Loan 2,330,000 Current Liabilities Total equity and liabilities 1,900,000 7,700,000 The market price per share as at 31 December 2018 was RM10.40 You have obtained the prior 2 years financial ratios of Bestari Sdn. Bhd and the industry average to be used in your analysis. The information is presented as follows. Types of ratios i. Current ratio ii. Acid-test ratio 2016 2017 2018 Industry average for 2018 2.24 1.5 2 1.35 0.75 1.26 iii. Average Days in inventory 38 days 83 days iv. Account receivable turnover 6.5 3.4 72 days 3.6 V. Debt ratio 0.48 0.48 0.52 vi. Times interest earned 7.3 2.3 5.7 vii. Profit margin 0.014 0.05 0.12 viii. Return on equity 0.39 0.14 0.38 ix. Earnings per share 4.8 1.8 3.9 x. Dividend yield 0.024 0.01 0.06 Required: (a) Compute the stated ratios above for year 2018 (round answer to 2 decimal places). (20 marks) (b) Based on your analysis, should you invest in Bestari Sdn. Bhd.? Support your answer with reference to your workings in (a) above. (5 marks) APPENDIX Profit margin Return on assets Return on ordinary shareholders' equity Account receivable turnover Average days in inventory Inventory turnover Current ratio FORMULAE: =Profit available to ordinary shareholders Sales =Profit available to ordinary shareholders Average total assets = Acid test ratio = Profit available to ordinary shareholders Average ordinary shareholders' equity Net credit sales Average net receivables 365 days Inventory turnover Cost of goods sold Average inventory Current Assets Current Liabilities Cash + Marketable securities + Net receivables Debt-to-equity ratio Current Liabilities = Total liabilities Debt to total assets ratio Price-earnings ratio Total equity Total liabilities Total assets Share price Earnings per share Dividend yield = Annual dividend per share Price per share