Financial Statement Analysis You have been recently employed by a local bank as a financial analyst. One of your first job assignments is to analyze the current financial condition of Cemerlang Bhd. You are given the following year 2020 balance sheet and income statement information for both of the companies. In addition, you are told that Cemerlang Bhd has 10,000,000 shares of common stock outstanding, currently trading at RM9 per share, and has made annual purchases of RM210,000,000. You are required to perform cross-sectional analysis and to prepare analysis reports for the company. The analysis involves calculating certain financial ratios and comparing these calculated ratios with the industry average ratios that are provided. You are also told to base your analysis on five categories of ratios: (a) liquidity ratios, (b) activity ratios, (c) debt ratios, (d) profitability ratios, and (e) market ratios. Cemerlang Bhd. Balance Sheet (in 000s) As of December 31, 2021 Accounts payable Cash RM 5,000 Accounts receivable 20,000 Inventory 40.000 RM 15,000 20.000 Notes payable Total current liabilities RM 35,000 Long-term debt 100,000 Total current assets RM 65,000 Net fixed assets 135.000 Stockholders' equity 65.000 Total assets RM200,000 Total liabilities and equity RM200,000 RM300,000 Net sales (all credit) Less cost of goods sold 250.000 Earnings before interest and taxes RM 50,000 3 Less interest 40,000 Earnings before taxes RM 10,000 Less taxes (40%) Net income 4.000 RM 6,000 KJH 1/5 Industry Averages for Key Ratios (Cemerlang Bhd.) - Year 2021: Net profit margin 6.4% Average collection period (365 days) 30 days Debt ratio 50% P/E ratio 23 Inventory turnover ratio 12.0 ROE 18% Average payment period (365 days) 20 days Times interest earned ratio 8.5 Total asset turnover 1.4 Current ratio 1.5 Assets-to-equity ratio. 2.0 ROA 9% Quick ratio 1.25 Fixed asset turnover rati 1.8 Use the following guidelines to complete this job assignment. First, identify which ratios you need to use to evaluate Cemerlang Bhd in terms of its (a) liquidity position, (b) business activity, (c) debt position, (d) profitability, and (e) market comparability. Next, calculate these ratios. Finally, compare these ratios to the industry average ratios provided in the problem and answer the following questions for the company. 1. Based on the provided industry average information, discuss the firm's liquidity position. Discuss specific areas in which the firm compares positively and negatively with the overall industry. (6 marks) 2. Based on the provided industry average information, what do the firm's activity ratios tell you? Discuss specific areas in which the firm compares positively and negatively with the overall industry. (7 marks) 3. Based on the provided industry average information, discuss the firm's debt position. Discuss specific areas in which the firm compares positively and negatively with the overall industry. (6 marks) 4. Based on the provided industry average information, discuss the firm's profitability position. As part of this investigation of firm profitability, include a DuPont analysis. Discuss specific areas in which the firm compares positively and negatively with the overall industry. (12 marks) 5. Based on the provided industry average information, how is the firm viewed in the marketplace? Discuss specific areas in which the firm compares positively and negatively with the overall industry. (4 marks) 6. Overall, what are the firm's strong and weak points? What would be your final recommendation knowing that your boss will approve new loans only to Cemerlang Bhd. Income Statement (in 000s) For the Year Ended December 31, 2021