Followings are extracted from December 31, 2019 financial reports of a ABC company listed in Kuwait. Consolidated Statement of Financial Position as at 31 December 2019 2019 2018 Restated KD '000 Note(s) ASSETS Current assets Cash and bank balances 4 Trade and other receivables 5 Contract assets 19.2 Inventories 6 296,985 555,398 66,889 48,513 8,540 17,611 993,936 311,916 521,534 66,062 45,957 15,519 7,656 968,644 7 Investment securities at fair value through profit or loss Assets of disposal group classified as held for sale 8 Non-current assets 19.2 7 Contract assets Investment securities at FVOCI Investments in associates and joint venture Other non-current assets Right of use of assets Property and equipment Intangible assets and goodwill 16,940 7,040 69,851 68,755 9 10 28,134 6,360 72,612 64,669 181,052 1,229,291 2,160,039 3,742,157 4,736,093 11 12 1,193,222 2,192,218 3,548,026 4,516,670 Total Assets LIABILITIES AND EQUITY Current liabilities 13 952,638 105,308 19.2 Trade and other payables Deferred revenue Liabilities of disposal group classified as held for sale Income tax payables Due to banks 8 14 857,512 98,495 5,397 61,775 180,274 42,795 1,246,248 11,863 15 412,971 Lease liabilities 16 1,482,780 Non-current liabilities Due to banks 15 1,033,565 16 Lease liabilities Other non-current liabilities 1,218,450 144,278 448,518 1,811,246 17 336,325 1,369,890 18 Equity Attributable to the Company's shareholders Share capital Share premium Legal reserve Foreign currency translation reserve Investment fair valuation reserve Other reserves Retained earnings 18 18 432,706 1,707,164 216,354 (1,371,841) (1,088) (3,044) 318,509 1,298,760 379,839 1,678,599 4,736,093 432,706 1,707,164 216,353 (1,367,018) 864 (4) 287,143 1,277,208 386,792 1,664,000 4,516,670 26 Non-controlling interests Total equity Total Liabilities and Equity Course Title: Financial Statement Analysis Course Code: ACT450 2 Page Consolidated Statement of Profit or Loss - Year ended 31 December 2019 2019 2018 Note(s) KD '000 Revenue 19.1 Cost of sales 20.a Operating and administrative expenses Depreciation and amortization Expected credit loss on financial assets (ECL) 1,660,890 (459,135) (434,436) (375,954) (38,886) 7,098 10,11,12 Interest income Investment income 21 1,317,613 (375,517) (409,996) (229,532) (13,188) 18,320 3,930 (2,444) (41,696) 30,931 (69,173) (9,648) (14,764) 46,935 9 Share of results of associates and joint venture Other income/ (expenses) Gain on business combination 1,007 2,762 38,955 20.b 35 Finance costs (110,723) 33 Provision for impairment loss on property and equipment Loss from currency revaluation Net monetary gain Profit before contribution to KFAS, NLST, Zakat, income taxes and Board of Directors' remuneration (13,058) 5,074 33 Contribution to Kuwait Foundation for Advancement of Sciences 22 National Labour Support Tax and Zakat Income tax expenses and other levies 283,594 (2,200) (7,082) (25,253) (510) 248,549 251,771 (1,667) (4,476) (19,752) (420) 225,456 23 Board of Directors' remuneration Profit for the year QUESTION 1) (15 Pts) Using 2019-2018 financial reports of ABC, a) Calculate current and quick ratios for 2018 and 2019. Show calculations. (6 pts) b) Comment on the liquidity position for each year, and on the change in liquidity position of the company from 2018 and 2019. Support your comment with the ratios you calculated in (a) (75 words, 9 pts) QUESTION 2) (20 pts) Using 2019-2018 financial reports of ABC, a) Calculate debt to equity (use debt items only) and liabilities to equity ratios for 2018 and 2019. Show calculations. (4 pts) b) Comment on the ratios you calculated in for each year, and on the change in debt and solvency ratios from 2018 to 2019. Support your comments with your answers in (a). (75 words, 6 pts) c) One argues that "The best for the company is to avoid from using debt because debt increases the company's riskiness". Do you agree? Why? (75 words, 10 pts) QUESTION 3) (30 pts) Using 2019-2018 financial reports of ABC, . a) Calculate the followings for 2018 and 2019: (14 pts - 2 pts each) Receivables turnover (use trade and other receivables) Days in Receivables Inventory turnover Days in inventories Payables turnover (use trade and other payables) Days in payables Cash conversion cycle b) Comment on the cash conversion cycle you found in (a). Do you see an improvement in cash conversion cycle from 2018 to 2019 or not? Explain. (75 words, 6 pts) c) What would you suggest companies to improve their cash conversion cycles? (75 words, 10 pts) QUESTION 4) (25 pts) Using 2019-2018 financial reports of ABC, a) Calculate the followings for 2019 only: (10 pts - 2 pts each) Return on Asset (ROA) Return on Equity (ROE) Net Profit Ratio Asset Turnover Equity Multiple USE THE BELOW FOR (b) and (c) parts of the question. See the industry averages for some of the ratios in the below table. Use the averages specific to your Student ID number. Otherwise, you will not gain any point from (b) and (c) parts of the question. Industry average Industry average Net Profit Ratio Asset Turnover Industry average Equity Multiple LAST DIGIT OF YOUR STUDENT ID 0 to 4 0.12 0.50 2.50 2 or 3 0.14 0.55 2.38 4 or 5 0.11 0.77 2.26 6 or 7 0.10 0.55 2.14 8 or 9 0.08 0.77 2.04 b) What is the industry average for ROA in 2019? Considering the industry average and the ratio you found in (a) what would you suggest company to record an improvement in ROA for the coming years? (75 words, 7.5 pts) c) What is the industry average for ROE in 2019? Considering the industry average and the ratio you found in (a) what would you suggest company to record an improvement in ROE for the coming years? (75 words, 7.5 pts)