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 form the firm's 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 firm's 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 firm's payable during the summer, which is the firm's peak seasonal sales period. The firm's two most recent statement of financial position were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements are found in the following Note: RM = Ringgit Malaysia (Malaysian Money Currency) 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 4,203 11,891 Gross profits Less: Operating expenses Selling & administration 4,064 3933 Pension 405 714 Non-pension post retirement Depreciation 758 834 Amortization of tools 1,100 994 Total operating expenses 1,120 961 Operating profits Less: Interest expenses 7,447 7,436 Net profit before taxes 4.444 6,767 Less: Taxes (40%) 995 937 Net profit after taxes 3.449 5,830 1,380 2.332 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 7,873 7,208 Less: Accumulated Depreciation 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 Short-term debt 8,290 2,674 7.826 4,645 5,582 Accrued liabilities 7,032 1,661 811 Other payments Total Current Liabilities 19,657 18.864 Non-Current Liabilities Long-term debt Accrued employee benefits Other non-current liabilities 9,858 3,378 4,065 17,301 7,650 3,514 3,736 14,900 Total Non-Current Liabilities Total Liabilities 36,958 33,764 Shareholder's Equity Preferred stock 0 2 408 364 Common stock (at RM1.00 par) Additional paid-in capital Retained earnings Total Shareholder's Equity 5,506 5,045 10,959 5,536 4.792 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 Non-Current Asset Turnover 22.8 1.54 Total Asset Tumover 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 Nobitha's loan request Based on the given information, answer the following questions. a. Which of the ratios reported in the average industry do you feel should be most crucial in determining whether the bank should extend the line of credit? Course Level = Master In Business Administration (MBA)
