solution needed only for Part 1.b and Part 2

Part 1 The Bujang Lapok Berhad manufactures and sells a line of exclusive sportswear. The company was started by Miss Sizuka just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Mr. Nobitha, has decided to seek a line of credit form the firm's bank. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm's suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Nobitha wants to use the line of credit to supplant a large portion of the firm's payable during the summer, which is the firm's peak seasonal sales period. The firm's two most recent statement of financial position were presented to the bank in support of its loan request. In addition, the firm's income statement for the year just ended was provided. These statements are found in the following: Income Statement for the year ending December 31, (in RM millions) This year Sales revenue 53,195 41,304 Last year 52,235 38,032 14,203 11,891 4,064 3,933 405 714 758 834 1,100 994 Less: Cost of goods sold Gross profits Less: Operating expenses Selling & administration Pension Non-pension post retirement Depreciation Amortization of tools Total operating expenses Operating profits Less: Interest expenses Net profit before taxes Less: Taxes (40%) Net profit after taxes 1,120 961 7,447 4,444 7,436 6,767 995 937 3,449 1,380 2,069 5,830 2,332 3,498 Last year 985 Statement of Financial Position for the year ending December 31 (in RM millions) This year Current Assets Cash and cash equivalents 5,543 Marketable securities 2,582 Account receivables 2,003 Inventories 4,448 Prepaid taxes Other receivables 13,623 Total Current Assets 29,184 Property & equipment 20,468 Less: Accumulated Depreciation 7,873 Net Plant & Equipment 12,595 Other Assets Special tools 3,566 Intangible assets 2,082 Deferred tax assets 490 Total Other Assets 6,138 Total Assets 47,917 5,145 3,226 1,695 3,356 1,330 12,433 27,185 18,281 7,208 11,073 3,643 2,162 395 6,200 44,458 8,290 2,674 7,032 1,661 19,657 7,826 4,645 5,582 811 18,864 Current Liabilities Account payables Short-term debt Accrued liabilities Other payments Total Current Liabilities Non-Current Liabilities Long-term debt Accrued employee benefits Other non-current liabilities Total Non-Current Liabilities Total Liabilities 9,858 3,378 4,065 17,301 36,958 7,650 3,514 3,736 14,900 33,764 Shareholder's Equity Preferred stock Common stock (at RM1 par) Additional paid-in capital Retained earnings Total Shareholder's Equity Total Liabilities and Shareholder's Equity 0 408 5,506 5,045 10,959 47,917 2 364 5,536 4,792 10,694 44,458 Industry Average Ratio this year Current Ratio 1.78 Acid Test Ratio 1.55 Inventory Turnover 7.41 Average Collection Period 22.8 Non-Current Asset 1.54 Turnover Total Asset Turnover 0.89 Debt 75% Times Interest Earned 6.4 Net Profit Margin 4.70% Return on Assets 4.60% Return on Common Equity 20.70% You were assigned the task of analysing Mr Nobitha's loan request. Based on the given information, answer the following questions. a. Compute the financial ratios for both years, and using the average industry evaluate the firm in the following category: i. ii. iii. iv. Liquidity Asset Management Debt Management Profitability b. Based on your computation in part (a) give your recommendation whether the bank will or will not grant the loan to Mr Nobitha. Part 2 Financial ratios may be used to understand a company's financial position, but anyone who works with these ratios ought to be aware of the limitations involved in their use. With your own words and understanding discuss (with relevant example) any 2 (TWO) limitations that may be encountered in computing and interpreting financial ratios