Accounting Assignment Question

The Bujang Lapok Berhad manufactures and sells a line of exclusive sportswear. The company was started by Miss Sizuka just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Mr. Nobitha, has decided to seek a line of credit from the firms bank. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firms suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Nobitha wants to use the line of credit to supplant a large portion of the firms payable during the summer, which is the firms peak seasonal sales period.

The firms two most recent statements of financial position were presented to the bank in support of its loan request. In addition, the firms income statement for the year just ended was provided. These statements are found in the following:

Income Statement for the year ending December 31, (in RM millions)

	This year	Last year
Sales revenue	53,195	52,235
Less: Cost of goods sold	41,304	38,032
Gross profits	11,891	14,203
Less: Operating expenses
Selling & administration	4,064	3,933
Pension	405	714
Non-pension post-retirement	758	834
Depreciation	1,100	994
Amortization of tools	1,120	961
Total operating expenses	7,447	7,436
Operating profits	4,444	6,767
Less: Interest expenses	995	937
Net profit before taxes	3,449	5,830
Less: Taxes (40%)	1,380	2,332
Net profit after taxes	2,069	3,498

Statement of Financial Position for the year ending December 31 (in RM millions)

		This year	Last year
Current Assets
Cash and cash equivalents		5,543	5,145
Marketable securities		2,582	3,226
Account receivables		2,003	1,695
Inventories		4,448	3,356
Prepaid taxes		985	1,330
Other receivables		13,623	12,433
	Total Current Assets	29,184	27,185
Property & equipment		20,468	18,281
Less: Accumulated Depreciation		7,873	7,208
	Net Plant & Equipment	12,595	11,073
Other Assets
Special tools		3,566	3,643
Intangible assets		2,082	2,162
Deferred tax assets		490	395
	Total Other Assets	6,138	6,200
Total Assets		47,917	44,458
Current Liabilities
Account payables		8,290	7,826
Short-term debt		2,674	4,645
Accrued liabilities		7,032	5,582
Other payments		1,661	811
	Total Current Liabilities	19,657	18,864
Non-Current Liabilities
Long-term debt		9,858	7,650
Accrued employee benefits		3,378	3,514
Other non-current liabilities		4,065	3,736
	Total Non-Current Liabilities	17,301	14,900
Total Liabilities		36,958	33,764
Shareholder's Equity
Preferred stock		0	2
Common stock (at RM1 par)		408	364
Additional paid-in capital		5,506	5,536
Retained earnings		5,045	4,792
	Total Shareholder's Equity	10,959	10,694
Total Liabilities and Shareholder's Equity		47,917	44,458

Industry Average Ratio this year

Current Ratio	1.78
Acid Test Ratio	1.55
Inventory Turnover	7.41
Average Collection Period	22.8
Non-Current Asset Turnover	1.54
Total Asset Turnover	0.89
Debt	75%
Times Interest Earned	6.4
Net Profit Margin	4.70%
Return on Assets	4.60%
Return on Common Equity	20.70%

You were assigned the task of analysing Mr. Nobithas loan request. Based on the given information, answer the following questions

1. Compute the financial ratios for both years, and using the average industry evaluate the firm in the following areas:
   • Liquidity
   • Operating profitability
   • Financing policies
   • Return on the shareholders investment