Question $5(20$ marks$)$

Honey Bun Company was analysed by your investment broker and the following relationships was

discovered:

Sales$/$total asset $1\mathrm{.}5x$

Return on assets $($ROA$)3\%$

Return on equity $($ROE$)5\%$

The information was new to you so you needed more information on financial statements and financial

ratios.

Required

a$)$ Discuss the roles of financial reporting and financial statement analysis. $(2$ marks$)$

b$)$ Discuss the key reports of a financial statement, Income Statement, Balance Sheet and Cash

Flow. $(3$ marks$)$

c$)$ Explain Vertical and Horizontal common size analysis of financial statements. $(2$ marks$)$

d$)$ Interpret the following categories of ratios, Activity, Solvency, Liquidity, Profitability and

Valuation ratios. $(5$ marks$)$

e$)$ Calculate Honey Bun's Profit Margin $(4$ marks$)$

f$)$ Calculate Honey Bun's debt ratio. $(4$ marks$)$

Question $6$ marks$)$

A company hired you as a Financial Consultant, to help in the strategic direction of the firm. Assume

that the company was incorporated as a C corporation that earned $$8\mathrm{.}8$ per share before it paid any

taxes. Also assume that the company retained $$2$ of after$-$tax earnings for reinvestment and distributed

what remained in dividend payments. If the corporate tax rate was $35\%$ and dividend earnings were

taxed at $10\%.$

$)$

a$)$ What are the three main tasks of a financial manager? $(3$ marks$)$

b$)$ Discuss the financial cycle. $(2$ marks$)$

c$)$ What is the role of the financial Institution? $(2$ marks$)$

d$)$ Give two examples of a financial market. $(1$ marks$)$

e$)$ Define the following types of organizations; a Corporation, Limited Liability Company,

partnership and a sole proprietorship? $(4$ marks$)$

f$)$ What is the main difference between a sole proprietorship and a limited liability company?

$(2$ mark$)$

g$)$ Explain the difference between $S$ and $C$ Corporation. $(2$ mark$)$

h$)$ What was the value of the dividend earnings received after$-$tax by a holder of $5,000$ shares of

the firm? $(4$ marks$)$