QUESTION 3: FINANCIAL STATEMENT ANALYSIS (40 MARKS] Shambavi, a graduate of Wawasan Open University with 1 year of experience as a junior equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components. During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Shambavi was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data. 50 Computron's Statement of Financial Position (Millions of Ringgit Malaysia) 2018 2019 Assets Cash and equivalents RM 60 RM Short-term investments 100 Accounts receivable 400 Inventories 620 Total current assets RM 1,180 RM Gross fixed assets RM 3,900 RM Less: Accumulated depreciation 1,000 Net fixed assets RM 2,900 RM Total assets RM 4,080 RM 10 520 820 1,400 4,820 1,320 3,500 4,900 RM 400 RM Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock Retained earnings Total equity Total liabilities and equity 240 890 1,100 RM 300 50 200 RM 550 800 RM 1,350 1,000 1,730 RM 2,730 RM 4,080 RM 1,990 RM RM 1,000 1,910 2,910 4,900 Computron's Income Statement (Millions of Ringgit Malaysia) (May 20XX) 2018 Net sales RM 5,500 RM Cost of goods sold (Excluding depr. & amort.) 4,300 Depreciation and amortization 290 Other operating expenses 350 Total operating costs RM 4,940 RM Earnings before interest and taxes (EBIT) RM 560 RM Less interest Pre-tax earnings RM 492 Taxes (25%) 123 Net Income RM 369 2019 6,000 4,800 320 420 5,540 460 RM 264 Notes: - Computron has no amortization charges. Computron's Statement of Cash Flows Millions of Ringgit Malaysia) May 2019 RM 264 320 Operating Activities Net Income before preferred dividends Noncash adjustments Depreciation and amortization Due to changes in working capital Change in accounts receivable Change in inventories Change in accounts payable Change in accruals Net cash provided by operating activities (120) (200) 100 40 404 RM RM (920) Investing activities Cash used to acquire fixed assets Change in short-term investments Net cash provided by investing activities 90 RM (830) RM Financing Activities Change in notes payable Change in long-term debt Payment of cash dividends Net cash provided by financing activities 200 300 (84) 416 RM (10) Net change in cash and equivalents Cash and securities at beginning of the year Cash and securities at end of the year 60 RM 50 Other Data Stock price Shares outstanding (millions) Common dividends (millions) Tax rate Weighted average cost of capital (WACC) May 2018 RM50.00 100 RM90 25% 10.00% May 2019 RM30.00 100 RM84 25% 10.00% Compute a) Computron's Current Ratio for year 2018 and 2019. b) Computron's Acid Test Ratio for year 2018 and 2019. c) Interpret the impact of the above ratios has on the Computron's liquidity. [10 Marks] Calculate a) Computron's Inventory turnover. b) Computron's Total asset turnover. c) Justify whether Computron achieve its efficiency in managing its assets. [10 Marks] Find a) Computron's Debt Ratio for year 2018 and 2019. b) Computron's Return on Equity for year 2018 and 2019. c) Discuss the change of debt and its impact the Computron's operating profitability or capital utilization. (10 Marks] Estimate a) Computron's Price/Earning Ratio (PER). b) Computron's Market/book ratio. c) Explain the overall performance of Computron for year 2019. [10 Marks]
