The following data relates to Qais Company Limited. Read the data carefully and answer the questions 1 through 4 below.

Balance Sheet

2018 2017 2016

Assets Rs. Rs. Rs.

Receivables (net of reserve for doubtful debts @ 2%) 384,000 336,300 285,600

Cash 78,000 72,000 28,350

Goodwill 90,000 105,000 120,000

Inventories 423,000 420,000 411,000

Investments 300,000 480,000 600,000

Marketable securities 89,100 99,630 112,350

Other assets 110,100 - -

Plant and machinery, net 1,350,000 1,260,000 1,170,000

Prepaid expenses 17,400 18,600 18,000

Vehicles 510,000 480,000 420,000

3,351,600 3,271,530 3,165,300

544,500

549,000

552,000

96,600 85,200 72,300

195,000 180,000 -

42,000 36,000 37,500

238,500 246,000 322,500

- 135,330 264,000

330,000

300,000

300,000

120,000 120,000 -

1,500,000 1,350,000 1,350,000

45,000 45,000 45,000

240,000 225,000 222,000

3,351,600 3,271,530 3,165,300

Total assets

Liabilities and Stockholders' Equity

Accounts payable

Accrued expenses

Debentures

Income taxes

Long-term debt

Short term loan

Stockholders' equity:

5% Preferred stock (Irredeemable)

6% Preferred stock (Redeemable)

Common stock

Paid-in capital in excess of par

Retained earnings

Total liabilities and stockholders' equity

Page 1 of 2

Income Statement

2018 2017 2016

Rs. Rs. Rs.

Revenues:

Net sales 2,820,000 2,700,000 2,640,000 Other income/(loss) (28,800) 33,900 -

2,791,200 2,733,900 2,640,000

285,600

286,800 282,000

1,821,000 1,740,000 1,698,000

- - 90,000

87,600 65,100 69,300

24,000 24,300 33,000

528,400 590,200 423,000

2,746,600 2,706,400 2,595,300

44,600 27,500 44,700

Costs/Losses:

Administrative and general expenses

Cost of goods sold

Extraordinary loss, net of taxes

Income taxes

Interest expense

Selling expense

Net earnings

Question No. 1 (10)

Reconstruct the financial statements, given above, in a form that is most suitable to conduct various types of financial analysis for assessing trends and making projections of financial operations and strength of the business entity. Also justify.

Question No. 2 (5+5)

a) Prepare common size analysis (vertical and horizontal) and explain, with reference to certain values, the limitations of using fixed base year instead of rolling base year.

b) Based on your analysis above, give a comprehensive commentary on the trends of firm's performance.

Question No. 3 (3+4+3)

a) What are various tools that could be employed to assess the profitability of a firm.

b) Employ a tool that you think is the best and assess the profitability of Qais Company Limited by making certain plausible assumptions.

c) Based on the analysis above, develop your argument for or against a proposal of investment of funds in this company by a treasury manager.

Question No. 4 (3+4+3)

a) Calculate various types of ratios that you think are essential to assess the short-term liquidity as well as long term solvency of Qais Company Limited.

b) Explain each ratio calculated above individually along with its limitations.

c) Give your overall opinion about the liquidity and solvency of the company.