Get a sample on Financial statement analysis explaining how equity investors have the objectives to know the business future earning capacity, growth potential and security of their holdings. All the investors are very much interested to get higher amount of returns. Therefore, they make risk and return analysis associated with their invested funds. Lenders such as bond investors have the objectives to know the short term as well as long term solvency of the business (Bushman and Smith, 2001).
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APPENDIX
Calculation of Return on Equity:
Profit margin Profit /sales 0.0625
Total assets turnover
ratio Sales/Assets
0.71111111
11
Financial leverage Assets/Equity
1.73076923
08
ROE
Profit margin*Assets
turnover*leverage 7.69
Changes in Working capital:
Extract from the statement of cash flows for the year ended 30
September, 2015
Operating profit 468
Increase in current assets and decrease in
current liability 2015 2014
Receivables 1325 1250 75
Inventory 869 786 83
Payables 1035 1360 325
Net cash flow from operating activities 951
Ratio Calculations:
Ratios Formula
Company data
2013 2014 2015
Return on
capital
employed PBIT/Equity and NCL 16.00% 15.00% 20.66
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Gross profit
percentage Gross profit/Revenue * 100 30.00% 35.00% 37.5
Net margin Net margin /revenue*100 19.00% 18.00% 6.25
Net cash inflow
coverage NCL/Revenue 15.00% 14.00% -5.625
Quick ratio
Cash and
receivable/payables 1.5 1.1 1
Solvency ratio Net cash inflow/equity 25.00% 29.00% -6.92
Profit based
interest cover Net profit/Finance cost 3.2 2.7 2
Cash based
interest cover
Net cash inflow/Finance
cost 3 2.4 -1.8
Receivable
collection
period Receivable/Revenue*365 32 44 57.03
Earnings per
share Net profit/Equity 18 13 7.69
Calculation of ratios for the year 2015
Ratios Formula (In $000) 2015
Return on capital
employed PBIT/Equity and NCL
25/(130-
9)*100
20.66115
70248
Gross profit percentage
Gross profit/Revenue *
100 60/160*100 37.5
Net margin
Net margin
/renvenue*100 10/160*100 6.25
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Net cash inflow
coverage NCL/Revenue (9)/160*100 -5.625
Quick ratio
Cash and
receivable/payables 30/30 1
Solvency ratio Net cash inflow/equity (9)/130*100
-
6.923076
9231
Profit based interest
cover Net profit/Finance cost 10/5 2
Cash based interest
cover
Net cash
inflow/Finance cost (9)/5 -1.8
Receivable collection
period
Receivable/Revenue*3
65 25/160*365 57.03125
Earning per share Net profit/Equity 10/130*100
7.692307
6923
Sample Assignment on Financial statement analysis
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