Question
You are a financial analyst working for a financial services provider. The financial information provided below is for two companies operating in the same industry:
You are a financial analyst working for a financial services provider. The financial information provided below is for two companies operating in the same industry:
Statements of comprehensive income for year ended 31 December 2020
|
| Tiger (Pty) Ltd | Lion (Pty) Ltd |
| Sales revenue | 8 200 000 | 6 300 000 |
| Less: variable costs | 6 430 000 | 4 420 000 |
| Cost of sales Selling expenses | 6 230 000 200 000 | 4 160 000 260 000 |
| Contribution | 1 770 000 | 1 880 000 |
| Less: fixed costs | 840 000 | 690 000 |
| Administration costs Production costs Selling costs | 180 000 600 000 60 000 | 140 000 510 000 40 000 |
| Earnings before interest and tax expense | 930 000 | 1 190 000 |
| Less: Finance costs | 100 000 | 90 000 |
| Profit before tax | 830 000 | 1 100 000 |
| Less: Income tax expense | 249 000 | 330 000 |
| Total comprehensive income for the year | 581 000 | 770 000 |
Statements of changes in equity for year ended 31 December 2020
|
| Tiger (Pty) Ltd | Lion (Pty) Ltd |
| Balance at 31 December 2019 Add: Profit for the period | 2 343 000 581 000 | 3 068 000 770 000 |
|
Less: Dividends | 2 924 000 174 000 | 3 838 000 288 000 |
| Balance at 31 December 2020 | 2 750 000 | 3 550 000 |
All sales are on credit in both companies
Statements of financial position as at 31 December 2020
|
| Tiger (Pty) Ltd | Lion (Pty) Ltd |
| ASSETS |
|
|
| Non current assets |
|
|
| Property, Plant and Equipment | 6 200 000 | 8 630 000 |
| Current assets | 2 760 000 | 2 970 000 |
| Inventories Accounts receivable Cash and bank balances | 1 340 000 1 360 000 60 000 | 1 060 000 1 820 000 90 000 |
| Total assets | 8 960 000 | 11 600 000 |
|
| Tiger (Pty) Ltd | Lion (Pty) Ltd |
| EQUITY AND LIABLITIES |
|
|
| Capital and reserves |
|
|
| Issued capital Retained earnings | 3 850 000 2 750 000 | 5 150 000 3 550 000 |
| Equity attributable to owners of the company | 6 600 000 | 8 700 000 |
| Non-current liabilities |
|
|
| Long-term borrowings | 600 000 | 700 000 |
| Current liabilities |
|
|
| Trade and other payables Bank overdraft Other current liabilities | 1 070 000 230 000 460 000 | 1 460 000 220 000 520 000 |
| Total current liabilities | 1 760 000 | 2 200 000 |
| Total liabilities | 2 360 000 | 2 900 000 |
| Total equity and liabilities | 8 960 000 | 11 600 000 |
ROUND ANSWERS TO TWO DECIMAL PLACES
REQUIRED:
1. Calculate the degree of financial leverage for Lion (Pty) Ltd.
2. Calculate the quick ratio for Tiger (Pty) Ltd.
3. Calculate the total asset turnover for Lion (Pty) Ltd.
4. Calculate the net profit margin for Tiger (Pty) Ltd.%
5. Calculate the times interest earned for Lion (Pty) Ltd.
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Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
13th Canadian Edition
1119740460, 978-1119740469
