[Type the company name]

Contents
Question 1.................................................................................................................. 3
Question No.2 (A)..................................................................................................... 10
Question No. 2 (B).................................................................................................... 12
Question No. 2 (C).................................................................................................... 13
Question No.3 (A)..................................................................................................... 14
Question No. 3 (B).................................................................................................... 14
(Question No. 3 (C)................................................................................................... 14
Question No. 3 (D).................................................................................................... 15
Question No. 3 (E).................................................................................................... 15
Question No.4 (A)..................................................................................................... 16
Question No. 4 (B).................................................................................................... 16
Question No. 4 (C).................................................................................................... 17
Question No.5 (A)..................................................................................................... 19
Question No. 5 (B).................................................................................................... 20

Industry
Average

Ratios
Profitability
ROE
GP Margin
Net Margin
Asset Turnover
EBIT/Sales
EPS

13%
50%
11%
1.5
22%
1.20

2014

2013

2012

12.67%
44%
9.40%
1.35
26.20%
0.78

10.62%
50.00%
8.60%
1.23
26.00%
0.57

34.23%
52.38%
21.81%
1.57
39.52%
1.53

Question 1

60%
50%

52%

50%

50%

44%
39.52%

40%

34.23%
ROE
26.20%

30%

26.00%

22.00%
20%

GP Margin
21.81%

Net Margin
EBIT/Sales

13.00%
11.00%

12.67%
9.40%

10.62%
8.60%

Industry Average

2014

2013

10%

0%

2012

1.6
1.4

1.57 1.53

1.5
1.35
1.23

1.2

1.2
1

0.78

0.8

Asset Turnover

0.57

EPS

0.6
0.4
0.2
0
Industry Average

2014

2013

2012

Profitability Ratios
Profitability ratios are a number of ratios presenting the marriage between variability of income,
company assets, equity, and sales revenue and revealing the firms overall effectiveness of
operations. Profitability has ROE (Return on equity), uncouth profit margin, net benefit margin,
EBIT/Sales, Asset turnover and earnings per share (Cunningham & John, 1995).
ROE (Return on equity)of Gargantuan Plc has shown an irregular trend which in turn sharply
decreased from 34. 23% in 2012 for you to 10. 26% in 2013 decreased almost 60% and display
some stability in 2014 for you to 12. 67% but still below the industry average of 13%. This is
due to of high investment connected with company to fixed asset and sales usually do not

increased by same ratio in 2012 for you to 2013 whereas show a number of improvements in
2014 throughout sales.
Gross Profit Margin of Gargantuan Plc has shown a decreasing trend in the course of as 52. 38%
throughout 2012, 50. 0% in 2013 and 44% in 2014 this as a result of increasing cost of
production but the less increase in income as compare to proportion of cost but nevertheless
shows weaker trends the industry of 50%.
Net Profit Margin of Gargantuan Plc has shown an irregular trend which in turn sharply
decreased from 3. 81% in 2012 for you to 8. 60% in 2013 where as increased to 9. 40%
throughout 2014. This is due to mainly due to reduction in gross profit margin throughout 2012
and 2013 where as in 2014 more of decrease of administrative expenses mainly downsizing
results in stability of net profit margins but still it is below the industry average of 11%.
EBIT/Sales of Gargantuan Plc has shown an irregular trend which in turn sharply decreased from
39. 52% throughout 2012 to 26. 0% in 2013 where as increased to 26. 20% throughout 2014.
This is because of scaling down of administrative expenses that enhance the EBIT where as this
lesser increase in sales is usually a reason of enhance in EBIT/Sales in 2014 together with shows
an outstanding from the industry average of 22%.
Asset turnover of Gargantuan Plc has shown an irregular trend which in turn decreased from 1.
57 in 2012 to at least one. 23 in 2013 where as increased to 1. thirty-five in 2014. The trend of
asset turnover is a result of irregular trend of EBIT which is also below industry average of just
one. 5.
Earnings per Share of Gargantuan Plc has shown an irregular trend which in turn decreased from
1. 53 throughout 2012 to 0. 57 in 2013 where as increased to 0. 77 in 2014. The trend of asset
4

turnover is a result of irregular trend of EBIT which is also below industry average of just one.
20.

Industry
Average

Liquidity Ratios
Current
Quick

2014 2013 2012

1.6
1.4

Debt/Assets

12%

Debt Equity
Interest Coverage

13%
18

1.82
1.27
11.32
%
11.32
%
65.5

1.45
1.05
12.96
%
12.96
%
17.3

1.8
1.2
7.47%
7.47%
27.6

65.5

70
60
50
40

27.6
30
18

1.6 1.4

1.821.27

1.451.05

1.8 1.2

0
Industry Average

2014

Current
Quick

17.3

20
10

Interest Coverage

2013

2012

13.00%
12.00%

14%

12.96%
12.96%
11.32%
11.32%

12%
10%

7.47%
7.47%

8%

Debt/Assets
Debt Equity

6%
4%
2%
0%
Industry Average

2014

2013

2012

Liquidity Ratios
Liquidity must be used to assess the Gargantuan Plcs chance to meet the short-term
responsibilities (Gombola& Edward, 1983). On the liquidity ratios such as current ratio, Quick
ratio inters coverage ratios, credit card debt to asset and credit card debt to equity ratios usually
are to measure the responsibilities of firm, a lot of insight might be incorporated into the present
cash solvency of the firm and the firms capability to remain solvent in the eventuality of
adversity.
Current ratio of Gargantuan Plc indicates an irregular trend which often decreased from 1. 80 in
2012 to at least one. 45 in 2013 where by increased to 1. 82 inside 2014. The trend of current
ratios is caused by irregular trend of current asset and it is also above industry average of just
one. 60.

Quick ratio of Gargantuan Plc indicates an irregular trend which often sharply decreased from 1.
2 in 2012 to at least one. 05 in 2013 where by increased to 1. 27 in 2014. This is due to cutting
down of existing liabilities and increase existing asset ad it weaker contrary to the industry
average of 1. 4.
Inters coverage ratios of Gargantuan Plc indicates an irregular trend which often decreased from
27. 6 inside 2012 to 17. 33 in 2013 where by increased to 65. 5 inside 2014. This is as a
consequence of cutting down of administrative expenses that raise the EBIT where asthe ratio
indicates an outstanding against the average of 18.
Debt to asset of Gargantuan Plc indicates an irregular trend which often increased from 7. 4%
inside 2012 to 12. 96% in 2013 where by decreased to 11. 32% inside 2014. This is as a
consequence of increase current asset plus it weaker against the market average of 12%..
Debt to equity percentages of Gargantuan Plc indicates an irregular trend which often increased
from 7. 4% inside 2012 to 12. 96% in 2013 where by decreased to 11. 32% inside 2014. This is
as a consequence of increase asset by equity plus it weaker against the market average of 12%.

Investment Ratios

Industry
Average

PE
BV/Common Share
Market to Book
Div Yield
Div Payout

2014
7
5
5.5

5.74
6.18
4.5

35%

29.63%

190%

170.21%

201
3
8.72
5.4
5
20.00
%
174.4
2%

2012
3.6
4.46
5.5
18.18%
65.50%

8.72
9
7

8
7

5.5

6.18
5.74

5.4

4.5

5.5

4.46

PE

3.6

BV/Common Share

Market to Book

3
2
1
0
Industry Average

2014

2013

2012

190.00%
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%

174.42%

170.21%

65.50%
35.00%

Industry Average

29.63%

2014

20.00%

18.18%

2013

2012

Div Yield
Div Payout

Investment Ratios
The matter of Shareholder investment ratios may be assessed by the dividend produce, dividend
payout ratio, Price tag earnings, Book value per share and market value to book value.

Dividend yield of Gargantuan Plc has revealed an increasing trend from 18. 18% in 2012 to 20.
0% in 2013 along with 29. 63% in 2014. This is because of increase earnings intended for stock
but it weaker up against the industry average of 35%.
Dividend payout ratio of Gargantuan Plc has revealed an irregular trend that increased from 65.
50% throughout 2012 to 174. 42% in 2013 where as decreased to 170. 21% in 2014 but it is
weaker against the industry average of 190%.
Price earnings of Gargantuan Plc has revealed an irregular trend that increased from 3. 6
throughout 2012 to 8. 72 in 2013 where as decreased to 5. 74 in 2014 but it is weaker against the
industry average of 7.
Book value per talk about of Gargantuan Plc has revealed an increasing trend from 4. 54 in 2012
to 5. 40 in 2013 along with 6. 18 in 2014. This is because of increase earnings available for stock
which is stronger against the market average of 5.
Market value to e book value of Gargantuan Plc has revealed an decreasing trend from 5. 5 in
2012 to 5 in 2013 along with 4. 5 in 2014. This is because of increase earnings intended for stock
but it weaker up against the industry average of 5. 5.

Question No.2 (A)

No of Items
5000
selling per unit in
total sales revenue
in

Cost
per
Item in
Us
200
700
350000
0

total Cost in
US dollars
1000000

total Cost in
606060.6061

Cost per Item in

121.2121212

less Selling &Admin

and other expose
Net profit in

125000
337500
0

A (i)
selling per unit in

1000

total sales revenue in

less CGS
gross profit
less Selling &Admin and other
expose

5000000
993939.3939
4006060.606

net profit in

3881060.606

125000

A(ii)
No of Items
5000
selling per unit
in
total sales
revenue in
less CGS
gross profit
less Selling
&Admin and
other expose
net profit in

Cost per
Item in Us
200

total Cost in
US dollars
1000000

total Cost in
603500.3018

Cost per Item in

120.7000604

1000
5000000
989740.494
9
4010259.50
5
125000
3885259.50
5

A(iii)
No of Items

Cost per
Item in Us

total Cost in US
dollars
10

total Cost in

Cost per
Item in

5000
selling per unit in
total sales revenue in
less CGS
gross profit
less Selling &Admin and
other expose
net profit in

1000000

689655.1724

137.931034
5

total Cost in US
dollars
1000000

total Cost in
505050.5051

Cost per
Item in
101.010101

200
1000
5000000
1131034.48
3
3868965.51
7
125000
3743965.51
7

A (iv)
No of Items
5000
selling per unit in
total sales revenue in
less CGS
gross profit
less Selling &Admin and
other expose
net profit in

Cost per
Item in Us
200
1000
5000000
828282.828
3
4171717.17
2
125000
4046717.17
2

Question No. 2 (B)

Monthly interest Risk
It is the risk of fluctuation in the interest rates in the market that have an influence on the bond
price. From the absence of coupon payments increase in interest levels will cause the bond value
to decrease and vice versa. In case there is coupon payments if the coupon is more than the
prevailing interest rates then bond is going to be issued at a premium. If the coupon rate is lower
than the interest rates then bond is going to be issued at a price cut. Where coupon and interest

11

levels are same then connection is issued at par. Monthly interest risk is generally measured
through the duration of a connection
Yield Curve Risk
Danger of fluctuation in short-term and long-term interest levels. Short-term interest rates are
generally lower than long-term interest levels, the maturity risk principle involves, and banks
make earnings by borrowing short-term cash (at lower rates) and buying long-term projects (at
better rates). But the romantic relationship between short-term and long-term rates can shift
rapidly and significantly, which can lead to volatile earnings and costs
Call Risk
A risk to the bond-holder where the bond can be called by the issuer. Under favorable
circumstances my spouse and i. e. where the issuer is paying higher charge, the issuer will make
use of the callable feature and will certainly redeem the bond ahead of maturity. The bondholder
will be reinvesting in any less favorable environment. As an example, a 10 years 7% connection
is callable after 36 months, if after 3 years the market interest rate is 5%, next the issuer will call
this bond back. Investor then have to reinvest in a cheaper rate bond. Thus it can lead to lower
total returns.

Question No. 2 (C)

Hanging and futures are the techniques by which Artech PLC might use to protect itself against
each of the key financial risks.

12

Question No.3 (A)

Cost of Equity
Cost of Equity

18%

Cost of Debt
Cost of Debt

12%

WACC

15.0%

Question No. 3 (B)

Net Cash
flow

1
15000
00
35000
00

2
550000

3
50000
0

4
13500
00

2950000

24500
00

11000
00

5
14000
00
30000
0

6
150000
0

7
1500000

Investment
= 5000000
Payback period
= 4.7 Years

(Question No. 3 (C)

Net Cash
flow
1

1500000

550000

500000

4
5

1350000
1400000

6
7

1500000
1500000

PV
1339285.71
4
438456.632
7
355890.123
9
857949.405
8
794397.598
759946.681
8
678523.823

NPV

5224449.979
13

Initial
Investment
project
Value

5000000
224449.9795

14

Question No. 3 (D)

Net Present Value Method
The Net Present value approach is one of the commonly used methods of investment proposal
techniques. And it's also a main discount cash flow technique which considers the time value of
money. NPV approach taking all cash flows in to account, pertaining to total duration of the
project, to figure out the actual profitability of the project. Suitable discount rate should be
recognized and used to discount the cash flows. Present value of cash flows will calculated by
cost of capital as the discount rate. Net Present Value is basically the subtraction of present value
of cash outflows of present value of cash inflows.

Question No. 3 (E)

The idea that money available at the present time is worth more than the same amount in the
future due to its potential earning capacity. This core principle of finance holds that, provided
money can earn interest, any amount of money is worth more the sooner it is received. Also
referred to as "present discounted value". 'time value of money -Everyone knows that money
deposited in a savings account will earn interest. Because of this universal fact, we would prefer
to receive money today rather than the same amount in the future.

15

Question No.4 (A)

Budget
Plant & equipment
Director salary
Salary worker
others cost
Tax
Total
sales

Apr
660
600
250
250

May
660
600
250
250

Jun
660
600
250
250

Jul
660
600
250
250

Aug
660
600
250
250

1760

1760

1760

1760

1760

8000

3000

7000

4500

5000

sep
660
600
250
250
1500
3260
1200
0

1009
60

1022
00

1074
40

1101
80

1134
20

1221
60

Initial Investment
10000
Net of balance

Question No. 4 (B)

Cash Budget
Apr
Plant & equipment
Director salary
Salary worker
others cost
Tax
Total
sales
Net of balance

660
600
250
250

May
660
600
250
250

Jun
660
600
250
250

1760
8000
6240

1760
3000
1240

1760
7000
5240

16

Jul
660
600
250
250

Aug
660
600
250
250

1760
4500
2740

1760
5000
3240

sep
660
600
250
250
1500
3260
12000
8740

Question No. 4 (C)

Inside my research, gathering a lots of studies related to operating capital management, cash
management and liquidity strategies normally, I noticed that many of these studies were
published in tough economy period (especially during the recovery period just following the
1973 Oil crisis). In fact, economic crises are time, where it is harder for companies to find
external causes of financing and so, they should study organic ways of savings and generating
money. However, firms main objective might be profitable so we can ask the subsequent
question: is it proven that improving liquidity carries a positive impact on liquidity (H7). All of
us will analyze this problem during our research. Hence, we can point out there that economic
turbulences undoubtedly are a favorable ground to decide on the link between liquidity as well as
profitability, as people has a tendency to oppose these two principles. As example, Pass and Pike
studied the relationship between working capital as well as profitability in 1984 and showed a
large link between the a pair of concepts.
The working capital issue is very interesting because it involves many components and is
connected with many areas of a firm. Thus, receivables are counting sales policy, invoicing,
fiscal term and, in very same time, another component like inventories is driven by means of
production and logistics. Many authors has been focusing on one of them particular components
but I believe that this issue has to be tackle globally by implementing an overall strategy aiming
at enhancing working capital level as well as enhance liquidity. In actuality, as it is an area with
multiple stakeholders, the best way to succeed in improving liquidity is to set up a liquidity
culture from the company.

17

In this circumstance, some authors have discussed the best way to manage working capital
therefore, create more values. Kolay (1991) underlined the need of a pro active management of
the different components as WC is evolving regarding the situation (economic environment,
firms financial structure) along with the strategy in place has to be continuously adapted and
revisited. Kolay pointed out the necessity to implement both long-term and short-run strategies.
Maynard E. Raffuse (1996) put the tension on stock reduction to have WC reduction by
supporting strategies depending on lean supply-chain techniques. He argued that tactics aiming
at delaying payment to creditors are not efficient and can also be harmful for the overall
economy. In fact, it is a negative sign shipped to creditors and economy in general and will lead
to be able to worse credit terms in the foreseeable future.
More recent studies focused more around the link between WC operations and cash. Thus,
Chiou& Cheng (2006) underlined greater systematic use of financial ratios like quick and current
ration, by means of companies management. In last year, Russell P. Boisjoly studied several
companies ratio linked to WC components in order to assess if their management practices had a
direct impact on their ratios. He figured an aggressive management of working capital in
addition to a productivity improvement had a solid impact on companies money flows. Lazaridis
&Tryfonidis (2006) aimed at the relationship between operating capital management and
profitability. They showed on an example of Greek companies that there were a statistical
significance involving profitability and firms money conversion cycle. Thus, managers can
establish value by looking carefully at cash conversion cycle components like receivables,
payables and assortments. Our idea is to appear carefully at the impact of key variables
associated with liquidity strategies on firms profitability therefore, identify ones for which you
should put resources.
18

Question No.5 A
Information for Tim Co for March
2014
Direct Material
Material X
Material Y
Direct Labour

Budgete
d
1.5
2
7

Actu
al
1
1.6
8

varian
ce
0.5
0.4
-1

Budget
ed
3
2
1

Actu
al
2
3.5
1.5

varian
ce
1
-1.5
-0.5

14-Mar
Fixed Costs
Wages
Administratio
n
Distribution

Budgete
d
1000

Actual
1250

varian
ce
-250

2000
2000

2000
2250

0
-250

These are the budgeted and actual sales and

price information for the same period:
varian
Budgeted
Actual
ce
Sales (Units)
Product A
1250
1100
150
Product B
500
600
-100
Price/Unit
Product A
25
22
3
Product B
35
33
2

Actual profit & loss for

product A
Budgeted profit &
loss for product A
sales A
1100X22
24200
less
fixAcost1250X25
5500
sales
31250
contribution
18700
less fix costmargin
5000
less
variable cost
contribution
margin
26250 0
gross
profit cost
18700
less variable
0

Question No. 5 (B)

19

Budget
ed
3
2
3

Actu
al
3.5
2.5
2.5

varian
ce
-0.5
-0.5
0.5

gross profit

26250

Negative Variance or unfavorable variances of 7750

Budgeted profit & loss of
B
sales of B
500X35
less fix cost
contribution margin
less variable
cost
gross profit

17500
5000
12500
0
12500

Favorable avarice of 1800

20

Actual profit & loss of

B
sales of B
600X33
less fix cost
contribution margin
less variable
cost
gross profit

19800
5500
14300
0
14300

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