The following table provides an historical summary of key financial ratios for Hallenstein Glassons Limited (HGL)....
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The following table provides an historical summary of key financial ratios for Hallenstein Glassons Limited (HGL). HGL is a company listed on New Zealand Stock Exchange. It is a retailer of men's and women's clothing in New Zealand and Australia. Ratio 2017 Return on assets % 20.24% Gross profit margin % 58.85% Profit margin % 7.23% 2.80 Asset Turnover (times) Days inventory (days) 76.47 days (b) 2018 29.72% 61.33% 9.84% 3.02 71.12 days 2019 37.73% 60.01% 13.72% 2.75 76.21 days Required: Please answer the following questions after reviewing the table of key financial ratios above: (a) With reference to the above ratios, analyse the trend in HGL's profitability providing possible reasons for any change. (8 marks - maximum of 200 words) Explain what a Days inventory ratio is measuring and how it impacts on HGL's profitability. (a) (b) (c) Identify two reasons why the cost of long-term debt is cheaper than the cost of equity for a listed company. (4 marks- maximum of 80 words) Explain why you cannot simply just compare the non-discounted value of the cash returns when deciding between the two investment opportunities. (4 marks- maximum of 80 words) Explain why cash flows rather than profits from the Income Statement are used in the net present value method of investment appraisal. (4 marks- maximum of 100 words) The following table provides an historical summary of key financial ratios for Hallenstein Glassons Limited (HGL). HGL is a company listed on New Zealand Stock Exchange. It is a retailer of men's and women's clothing in New Zealand and Australia. Ratio 2017 Return on assets % 20.24% Gross profit margin % 58.85% Profit margin % 7.23% 2.80 Asset Turnover (times) Days inventory (days) 76.47 days (b) 2018 29.72% 61.33% 9.84% 3.02 71.12 days 2019 37.73% 60.01% 13.72% 2.75 76.21 days Required: Please answer the following questions after reviewing the table of key financial ratios above: (a) With reference to the above ratios, analyse the trend in HGL's profitability providing possible reasons for any change. (8 marks - maximum of 200 words) Explain what a Days inventory ratio is measuring and how it impacts on HGL's profitability. (a) (b) (c) Identify two reasons why the cost of long-term debt is cheaper than the cost of equity for a listed company. (4 marks- maximum of 80 words) Explain why you cannot simply just compare the non-discounted value of the cash returns when deciding between the two investment opportunities. (4 marks- maximum of 80 words) Explain why cash flows rather than profits from the Income Statement are used in the net present value method of investment appraisal. (4 marks- maximum of 100 words)
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a HGLs profitability has been trending upwards over the period shown as indicated by the increasing return on assets and profit margin ratios Return o... View the full answer
Related Book For
Accounting Business Reporting For Decision Making
ISBN: 9780730363415
6th Edition
Authors: Jacqueline Birt, Keryn Chalmers, Suzanne Maloney, Albie Brooks, Judy Oliver
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