Comment on the short-term liquidity, longer term solvency and business performance of Boat Builders based on your analysis of tlie ratios. Remember that you should be analysing the modified financial statements that you generated as part of case study 1.

Case study 2 - Financial analysis of Boat Builders Ply Ltd* CASE STUDY Learning objectives After completing this case study, you should be able to: 1 complete a detailed financial ratio analysis of a series of statements of financial position and a statement of financial performance 2.complete a detailed financial analysis of a cashflow budget using a five-stage checklist 3. generate conclusions from this analysis about the risks you face as a leader to this business Introduction You need to complete case study 1 (Boat Builders Pty Ltd) before commencing this case study. The focus in case study I was on identifying any concerns that you had about the balance sheets and profit and loss statements for Boat Builders to ensure there was limited scope for garbage-in. garbage-out (GIGO) in the financial analysis stage. In this second case study, the focus is on the sub- requent financial analysis stage Based on the concerns that you identified in case study 1, you were asked to make adjustments to the financial statements. These are the adjusted financial statements that you will analyse in this second case study Boat Builders Pty Ltd Date: 1 July 2003 Background Case study 1 provided a detailed background on Boat Builders. Here, you are asked to conduct a detailed financial ratio analysis of the balance sheets and the profit and loss statements that the directors of Hout Builders have supplied. Many different financial ratios could be used as part of this analysts, but we recommend that you use the following ratios (und ratio groups) Short term lewality milion Current to Current untis divided by current Habilities Qucati Current stock) divided by current liabilities-rendraft) Debtors never Tride debtors divided by average chilly alim [cente) * Pieclamer. This case madly in Hyperthecal. Any reemblance to actual events, balet, entides en persones bo tly cincial Chan slutly Finds of Beatles PLN SU Short-term uidity ratios continued Stock turnover Average stock divided by daily cost of goods sold Creditors amover Trade creditors divided by average daily purchases Longer term solvency ratles Shareholders' funds divided by total stets Shareholders' funda divided by outside Habiltilts Fixed assets divided by shareholders' funda Businast performance ralios Grossiturgin (Sales - cost el goods soll divided by sule Netmargin Net profit divided by sales Operating expenses divided by sales A potential trap with ratio analysis is that it can end up being superficial if it focuses on the ratio values without going into what lies behind those values. Here are some ways in which to make your ratio analysis more in depth, 1. Refer to the source data Relate your analysis of each ratio back to the underlying figures in the balance sheet or profit und loss statement used in the calculation of the ratio. Consider a longer term solvency ratio: shareholders' funds divided by total assets, for example, which has changed from 47 per cent to 40 per cent to 37 per cent over a three-year period. Why has this change in the ratio value occurred? Has it been due to a growth in total assets while shareholders' funds remain constant? Or, to some other combination of change in total assets and shareholders' funds? 2. Relate comments to the type of business concerned Ratio analysis should be used to say something about the business concerned, If the business is a boat builder, then the comments about stock turnover should relate to the stock typically held by a boat building business. As an example, what proportion of work-in-progress is contained in Boat Builders' stock figure? 3. Make some conclusions about risks Lenders are ultimately interested about risks, so tatio analysis should be used to make conclusions about the risks that the leader to this business faces. If the liquidity position of the business is poor, then what are risks to the lender? Request for increased funding The directors of Boat Builders have requested the following increase in bank funding 508 Part 7. Case studio 5110000 $300 000 Current Priposed Facili talangemi Balance limit Comment Overdeak Increase in base limit (see discussion below) Dill facility 5220 000 $220 000 mil fucily more in October 2003 Facility is to be founced on sa fnterest only basis for three years, Lease for bout lifter $60000 To be purchased in October 2003 Lexelor metal $140000 To be installed in the new factory fabrication machinery (October 2003) We Not applicable The directors have provided a cashflow budget, with the following notes, to support their request for an increase in the overdraft limit in particular 1 The 5300 000 overdraft limit will be required orily until June 2004. At that, point, the limit will be returned back to 5110 000 2 The increase in the overdraft limit is to cover: - a nation payment of $95000 due in October 2003 - construction costs of 5220 000 which will be payable during October and November 2003 superannuation payments due in December 2003 the purchase of additional stock following a reduction in stock before the move to the new factory 3. Since May 2003, Deep Sea Fishing Enterprises Lid (DSFE) has owed $280 000 to Boat Builders. This debt relates to a boat that was built for use in a joint venture between DSFE and the Commonwealth Scientific and Indus trial Research Organisation (CSIRO), DSFE is waiting for payment from its government partiet According to documents provided by DSFE, this pay- ment will be made in four tranches as follows: October ($100000). November (5100 000), December (540000) and January (540000). 4. The figure of 51 615 000 for Sales' is made up of contracts with both DSFE (65 per cent) and other customers (35 per cent). Boat Builders expects that these sales will be paid within thirty days. You are asked to analyse the cashflow using the five-stage cashflow checklist outlined in table 9.7 (page 300). In particular, you are asked to concentrate on parts 4 and 5 of the checklist: analysing the validity of the underlying assump- tions and critically considering the issue of sensitivity analysis. NET LRT 40 CCT HE 19 Meat Bulan PL Castle andet for the year ended 30 June 2013 Oct Det Fea Mar. AK tay Z 2003 2013 2001 Aug Sep 2004 2004 2004 2006 2004 2004 2004 Tatal 10300 -1260-120-4-240173 -2255-2019-399155-2945TD-259 014-9565-510 -10T007-154597 100 000 100 000 40000 40 000 10000 11000 1300 120 000 165 000 100 000 23000 235 000 110000 10000 100 000 1675COG 750 000 100000 140000 150000 1700 000 165.000 10000 229000 235 000 10 000 0000 100000 183 000 TO Se 900 9030 2000 2361 6331 7050 S18 14500 139 10 600 1393 157 3414 041 20600 30000 10 000 20000 20000 103 10 2000 0 0 3050 23 192 317 333 546 89 LOL 255 2823 300 340 355 333 371 100 300 37 2009 52 71 155 11 19 22 27 247 2000 2000 1999 100 105 217 420 12300 123 600 127720 210 36050 10600 127720 1019 05 1725 12360 1390 14420 1470 120 12300 100 111735 3923 7971 133 133 13403 133 133 133 22 333 1504 440 506 50 155 410 52 42 40 012 412 412 SO 4914 6150 8110 511 24720 311 511 311 911 1 1958 1958 6131 1958 200 1980 1955 19 23555 140 140 115 140 145 200 140 140 2792 24 24 258 25 24 993 916 4120 1945 2730 3000 1 OT 51 900 1409 3621 CET 7 Opening balance CASH INTLOWS TOTAL CASE INFLOWS COST OF SALAS Commables (weldig Drabung Dut we Bicy Trecht rain-planet Tals Marilah (mainly luminium) Stenstam CASH EXTENSES Alien char Hi- Interstellt Interest - loan Modele Page Trim The dig Hard Stall training Super Telep Union OTHER CASH OUIFLOWS Tato Eenu TOTAL CASU OUTFLOWS Closing dakbalas STE Its TTS TIS ITC 511 TES INST TIS 0961 N OGO! 16 006 15 20 183 03 3 3 3000 93000 310000 110 000 230 000 235 670 130 546 1697 136 670 173 340 15 954 1855 184 504 71 TI 953 158 109 771 2011078 -136570 -120435-340175 -336845-180191-200155-204910 -350054-55 -94839 -OTOT -106 673 63 639 Case study 2 - Financial analysis of Boat Builders Ply Ltd* CASE STUDY Learning objectives After completing this case study, you should be able to: 1 complete a detailed financial ratio analysis of a series of statements of financial position and a statement of financial performance 2.complete a detailed financial analysis of a cashflow budget using a five-stage checklist 3. generate conclusions from this analysis about the risks you face as a leader to this business Introduction You need to complete case study 1 (Boat Builders Pty Ltd) before commencing this case study. The focus in case study I was on identifying any concerns that you had about the balance sheets and profit and loss statements for Boat Builders to ensure there was limited scope for garbage-in. garbage-out (GIGO) in the financial analysis stage. In this second case study, the focus is on the sub- requent financial analysis stage Based on the concerns that you identified in case study 1, you were asked to make adjustments to the financial statements. These are the adjusted financial statements that you will analyse in this second case study Boat Builders Pty Ltd Date: 1 July 2003 Background Case study 1 provided a detailed background on Boat Builders. Here, you are asked to conduct a detailed financial ratio analysis of the balance sheets and the profit and loss statements that the directors of Hout Builders have supplied. Many different financial ratios could be used as part of this analysts, but we recommend that you use the following ratios (und ratio groups) Short term lewality milion Current to Current untis divided by current Habilities Qucati Current stock) divided by current liabilities-rendraft) Debtors never Tride debtors divided by average chilly alim [cente) * Pieclamer. This case madly in Hyperthecal. Any reemblance to actual events, balet, entides en persones bo tly cincial Chan slutly Finds of Beatles PLN SU Short-term uidity ratios continued Stock turnover Average stock divided by daily cost of goods sold Creditors amover Trade creditors divided by average daily purchases Longer term solvency ratles Shareholders' funds divided by total stets Shareholders' funda divided by outside Habiltilts Fixed assets divided by shareholders' funda Businast performance ralios Grossiturgin (Sales - cost el goods soll divided by sule Netmargin Net profit divided by sales Operating expenses divided by sales A potential trap with ratio analysis is that it can end up being superficial if it focuses on the ratio values without going into what lies behind those values. Here are some ways in which to make your ratio analysis more in depth, 1. Refer to the source data Relate your analysis of each ratio back to the underlying figures in the balance sheet or profit und loss statement used in the calculation of the ratio. Consider a longer term solvency ratio: shareholders' funds divided by total assets, for example, which has changed from 47 per cent to 40 per cent to 37 per cent over a three-year period. Why has this change in the ratio value occurred? Has it been due to a growth in total assets while shareholders' funds remain constant? Or, to some other combination of change in total assets and shareholders' funds? 2. Relate comments to the type of business concerned Ratio analysis should be used to say something about the business concerned, If the business is a boat builder, then the comments about stock turnover should relate to the stock typically held by a boat building business. As an example, what proportion of work-in-progress is contained in Boat Builders' stock figure? 3. Make some conclusions about risks Lenders are ultimately interested about risks, so tatio analysis should be used to make conclusions about the risks that the leader to this business faces. If the liquidity position of the business is poor, then what are risks to the lender? Request for increased funding The directors of Boat Builders have requested the following increase in bank funding 508 Part 7. Case studio 5110000 $300 000 Current Priposed Facili talangemi Balance limit Comment Overdeak Increase in base limit (see discussion below) Dill facility 5220 000 $220 000 mil fucily more in October 2003 Facility is to be founced on sa fnterest only basis for three years, Lease for bout lifter $60000 To be purchased in October 2003 Lexelor metal $140000 To be installed in the new factory fabrication machinery (October 2003) We Not applicable The directors have provided a cashflow budget, with the following notes, to support their request for an increase in the overdraft limit in particular 1 The 5300 000 overdraft limit will be required orily until June 2004. At that, point, the limit will be returned back to 5110 000 2 The increase in the overdraft limit is to cover: - a nation payment of $95000 due in October 2003 - construction costs of 5220 000 which will be payable during October and November 2003 superannuation payments due in December 2003 the purchase of additional stock following a reduction in stock before the move to the new factory 3. Since May 2003, Deep Sea Fishing Enterprises Lid (DSFE) has owed $280 000 to Boat Builders. This debt relates to a boat that was built for use in a joint venture between DSFE and the Commonwealth Scientific and Indus trial Research Organisation (CSIRO), DSFE is waiting for payment from its government partiet According to documents provided by DSFE, this pay- ment will be made in four tranches as follows: October ($100000). November (5100 000), December (540000) and January (540000). 4. The figure of 51 615 000 for Sales' is made up of contracts with both DSFE (65 per cent) and other customers (35 per cent). Boat Builders expects that these sales will be paid within thirty days. You are asked to analyse the cashflow using the five-stage cashflow checklist outlined in table 9.7 (page 300). In particular, you are asked to concentrate on parts 4 and 5 of the checklist: analysing the validity of the underlying assump- tions and critically considering the issue of sensitivity analysis. NET LRT 40 CCT HE 19 Meat Bulan PL Castle andet for the year ended 30 June 2013 Oct Det Fea Mar. AK tay Z 2003 2013 2001 Aug Sep 2004 2004 2004 2006 2004 2004 2004 Tatal 10300 -1260-120-4-240173 -2255-2019-399155-2945TD-259 014-9565-510 -10T007-154597 100 000 100 000 40000 40 000 10000 11000 1300 120 000 165 000 100 000 23000 235 000 110000 10000 100 000 1675COG 750 000 100000 140000 150000 1700 000 165.000 10000 229000 235 000 10 000 0000 100000 183 000 TO Se 900 9030 2000 2361 6331 7050 S18 14500 139 10 600 1393 157 3414 041 20600 30000 10 000 20000 20000 103 10 2000 0 0 3050 23 192 317 333 546 89 LOL 255 2823 300 340 355 333 371 100 300 37 2009 52 71 155 11 19 22 27 247 2000 2000 1999 100 105 217 420 12300 123 600 127720 210 36050 10600 127720 1019 05 1725 12360 1390 14420 1470 120 12300 100 111735 3923 7971 133 133 13403 133 133 133 22 333 1504 440 506 50 155 410 52 42 40 012 412 412 SO 4914 6150 8110 511 24720 311 511 311 911 1 1958 1958 6131 1958 200 1980 1955 19 23555 140 140 115 140 145 200 140 140 2792 24 24 258 25 24 993 916 4120 1945 2730 3000 1 OT 51 900 1409 3621 CET 7 Opening balance CASH INTLOWS TOTAL CASE INFLOWS COST OF SALAS Commables (weldig Drabung Dut we Bicy Trecht rain-planet Tals Marilah (mainly luminium) Stenstam CASH EXTENSES Alien char Hi- Interstellt Interest - loan Modele Page Trim The dig Hard Stall training Super Telep Union OTHER CASH OUIFLOWS Tato Eenu TOTAL CASU OUTFLOWS Closing dakbalas STE Its TTS TIS ITC 511 TES INST TIS 0961 N OGO! 16 006 15 20 183 03 3 3 3000 93000 310000 110 000 230 000 235 670 130 546 1697 136 670 173 340 15 954 1855 184 504 71 TI 953 158 109 771 2011078 -136570 -120435-340175 -336845-180191-200155-204910 -350054-55 -94839 -OTOT -106 673 63 639