COMPREHENSIVE QUESTION- FRA Question 1 The following five-year ratio summaries relate to Xtran Manufacturing Bhd, and was calculated based or financial statements prepared under historical cost convention. 2003 2002 2001 2000 1999 2003 -Operating profit margin % times 8.10 7.80 7.50 7,10 6.80 6.13 2.20 2.50 2.80 3.00 3.20 2.90 17.8 19.5 21.0 21.3 21.7 17.7 2.15 2.01 1.80 1.85 1.50 1.55 0.75 0.76 0.80 0.86 1.05 0.89 4.89 5.11 5.50 5.90 6.63 5.40 31.0 36.0 37.0 40.0 80.0 35.0 55.0 51.0 55.0 54.0 55.0 55.0 65.8 66.5 60.2 55.6 33.3 41.5 3.98 3.15 3.02 3.45 5.32 4.80 2.45 2.16 2.33 2.10 2.50 2.26 Asset turnover Return on total asset Current ratio times times Quick ratio -Stock and WIP turnover times Debtor turnover Creditor tumover Long-term debt to equity% Interest cover Dividend cover days days times The following information is relevant: 1) The company is a manufacturer of automated surface mount machines for electronic sector. In 199 the Board of Directors had taken a strategic decision to reposition its market placing in the wafer-chip technology sector instead of the existing consumer electronic manufacturing sector. This requires heavy investment in assets which the directors.had earnings and coupon bonds. The company distributes dividend based on residual dividend pollcy. decided to finance via a mixture of retainec 2) The wafer-chip technology sector s eected to offer a higher margin 3) In the year 2000, the company factored all its debts to a finance 4) Inflation rate is running at 5% per annum over the period under review. 5) The company treats all leases as operating lease. Required but a slow down in output i expected. company with no recourse. Using the above information and ratios Xtran Manufacturing Bhd in the following areas: (a) Profitability (b) Efficiency on utilization of assets (c) Returns on investment in assets (d) Gearing (e) Liquidity Clearly state any assumptions made) i) Based on your evaluation above, discuss the effect of inflation on the overall performance and positior of the company