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Question 1 (25 Marks) U&ME Bhd manufactures a variety of consumer products. The company's founders have run the company for 30 years and are now
Question 1 (25 Marks) U&ME Bhd manufactures a variety of consumer products. The company's founders have run the company for 30 years and are now interested in retiring. Consequently, they are seeking a purchaser who will continue its operations, and a group of investors, M&M Bhd is looking into the acquisition of U&ME. To evaluate its financial stability and operating efficiency, U&ME was requested to provide the latest financial statements and selected financial ratios. Summary information provided by U&ME is presented below and on the next page. U&ME BHD Statement of Comprehensive Income For The Year Ended December 31, 2015 (In Thousands) Sales (Net) 30,500 Interest income 500 Total Revenue 31,000 Costs and Expenses Cost of goods sold 17,600 Selling and administrative expenses 3,550 Depreciation and amortization expense. 1,890 Interest expenses 900 Total costs and expenses 23,940 Income before taxes 7,060 Income taxes 2,800 Net Income 4,260 U&ME BHD Statement of Financial Position For The Year Ended December 31, 2015 (In Thousands) 2014 2015 cash 400. 500 Short-term investments (at cost). 300. 200 Account receivable (net). 3200. 2900 Inventory. 6000. 5400 Total current assets. 9900. 9000 Property,Plant & Equipment (net). 7100. 7000 Total assests. 17000. 16000 Accounts payable. 3700. 3400 Income taxes payables. 900. 800 Accrued expenses. 1700. 1400 Total current liabilities. 6300. 5600 Long term debt. 2000. 1800 Total liabilities. 8300. 7400 Common stock (Rm 1 par value). 2700. 2700 Paid in capital in excess of par. 1000. 1000 Retained earnings. 5000. 4900 Total stockholders' equity. 8700. 8600 Total liabilities and stockholders' equity.17000. 16000 Selected Financial Ratios U&ME Bhd Current Industry Average 2015 2014 Current ratio 1.61 1.62 1.63 Acid test ratio. .64 .63 .68 Times interest earned 8.55 8.50 8.45 Profit margin on sales 13.2% 12.1% 13.0% Asset turnover 1.84 1.83 1.84 Inventory turnover 3.17 3.21 3.18 Required : l.Calcuiate a new set of ratios for the fiscal year 2016 for U&ME based on the financial statements presented. (10 marks) ll.Explain the analytical use of each of the six ratios presented, describing what the investors can learn about U&ME's financial stability and operating efficiency. (12 marks) Ill. Identify two limitations of ratio analysis. ( 3 marks)
Question 1 (25 Marks)
U&ME Bhd manufactures a variety of consumer products. The company's founders have run the company for 30 years and are now interested in retiring. Consequently, they are seeking a purchaser who will continue its operations, and a group of investors, M&M Bhd is looking into the acquisition of U&ME. To evaluate its financial stability and operating efficiency, U&ME was requested to provide the latest financial statements and selected financial ratios. Summary information provided by U&ME is presented below and on the next page.
U&ME BHD
Statement of Comprehensive Income
For The Year Ended December 31, 2015
(In Thousands)
Sales (Net) 30,500
Interest income 500
Total Revenue 31,000
Costs and Expenses
Cost of goods sold 17,600
Selling and administrative expenses 3,550
Depreciation and amortization expense. 1,890
Interest expenses 900
Total costs and expenses 23,940
Income before taxes 7,060
Income taxes 2,800
Net Income 4,260
U&ME BHD
Statement of Financial Position
For The Year Ended December 31, 2015
(In Thousands)
2014 2015
cash 400. 500
Short-term investments (at cost). 300. 200
Account receivable (net). 3200. 2900
Inventory. 6000. 5400
Total current assets. 9900. 9000
Property,Plant & Equipment (net). 7100. 7000
Total assests. 17000. 16000
Accounts payable. 3700. 3400
Income taxes payables. 900. 800
Accrued expenses. 1700. 1400
Total current liabilities. 6300. 5600
Long term debt. 2000. 1800
Total liabilities. 8300. 7400
Common stock (Rm 1 par value). 2700. 2700
Paid in capital in excess of par. 1000. 1000
Retained earnings. 5000. 4900
Total stockholders' equity. 8700. 8600
Total liabilities and stockholders' equity.17000. 16000
Selected Financial Ratios
U&ME Bhd Current Industry
Average
2015 2014
Current ratio 1.61 1.62 1.63
Acid test ratio. .64 .63 .68
Times interest earned 8.55 8.50 8.45
Profit margin on sales 13.2% 12.1% 13.0%
Asset turnover 1.84 1.83 1.84
Inventory turnover 3.17 3.21 3.18
Required :
l.Calcuiate a new set of ratios for the fiscal year 2016 for U&ME based on the financial statements presented. (10 marks)
ll.Explain the analytical use of each of the six ratios presented, describing what the investors can learn about U&ME's financial stability and operating efficiency. (12 marks)
Ill. Identify two limitations of ratio analysis. ( 3 marks)
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