ACC ASSIGNMENT BRIEF

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SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
Centre for Modern Architecture Studies in Southeast Asia
Foundation of Natural and Built Environments (FNBE)
Basic Accounting [ACC30205/FNBE0145]
Prerequisite: None
Lecturer: Chang Jau Ho
Assignment: Financial Ratio Analysis
30% Group Work
Submission: by 12pm, Friday, 4th
June 2015 (Week 16)
Introduction
The assignment will assist students in developing a better appreciation in ratio
analysis and interpretation as a tool for evaluating real-world companies. By
reading and analysing the annual reports of publicly-traded companies,
students can acquire valuable skills such as deciphering the various details
contained in an accounting report, give informed opinions about the
company’s business operations and make recommendations regarding the
worthiness of the business’ common shares as an investment medium.
Objectives of Project
The objectives of this project:
 To understand the basic purposes of ratio analysis and interpretation.
 To understand the techniques of applying the ratios.
Learning Outcomes of Project
On successful completion of this project, students will be able to demonstrate
the following:
 Assess the performance of a business (in terms of profitability and
financial stability) by applying financial ratio analysis.
 Make appropriate business decisions with reference to various
accounting information and tools.
Tasks - Methodology
Your tasks are as follows:
a) Form a group with a maximum of 3 members.
b) Select a public company (domestic or international) as your research
subject. Ensure that the chosen company is engaged in trading
physical goods, not services.

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c) Provide a brief background history of the company and its recent
development.
d) Conduct ratio analysis on the business annual reports for the last 2
years (e.g. 2012 & 2013) and interpret the results.
e) Together with the P/E ratio (see appendix for more information),
provide justifications on whether the company’s shares are worthy of
investment.
f) Submit your findings in a report with a maximum word limit of 1500
words, excluding references and appendices. The report must be
submitted in a softcopy form.
g) Note: ensure that you have at least 5 different sources of information in
the appendix.
h) Note 2: Include the company’s Income (or P&L) statements and
Balance Sheets for the relevant years in your report’s appendix section.
i) Important: Ensure that you quote your sources and refrain from
copying. I conduct plagiarism checks on all assignments
submitted. Students caught with the said offence will face
disciplinary action. Ignore this warning at your own risk.
Submission Requirement
- A 1500-word written report (excluding cover page and references) submitted
in softcopy form to jauho.chang@taylors.edu.my.
Assessment criteria
The assessment for this assignment will be based on:
TGC
Acquir
ed
Assessment Criteria Marks %
Group Component
Company Background 5%
Ratio Calculation 10%
Ratio Interpretation 10%
Investment Recommendation 5%
TOTAL 30%
Marking criteria
Please refer to Assessment Rubric on page 3.

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Assessment Rubric for Basic Accounting Assignment (ACC30205)
Assessment
Criteria (with
TGC)
30
%
Excellent (10-
9)
Good (8-7) Satisfactory
(6-5)
Poor (4-3) Fail (2– 0)
Company
Background
5%
Provides a
very well-
organized and
easy-to-
understand
background
history of the
firm.
Provides a
well-organized
and easy-to-
understand
background
history of the
firm.
Provides a
somewhat
organized and
understandabl
e background
history of the
firm.
Provides a
disorganized
and somewhat
hard-to-
understand
background
history of the
firm.
Background
history of the
firm is
presented in a
very
disorganized
and difficult-
to-
comprehend
manner.
Ratio
Calculation
10
%
All the
calculations
performed are
correct with
reference to
the formulas
and
accounting
report data.
There are 1-2
calculation
mistakes in
terms of
misapplication
of formula or
using the
wrong data.
There are 3-4
calculation
mistakes in
terms of
misapplication
of formula or
using the
wrong data.
There are 5-6
calculation
mistakes in
terms of
misapplication
of formula or
using the
wrong data.
There are 7 or
more
calculation
mistakes in
terms of
misapplication
of formula or
using the
wrong data.
Ratio
Interpretation
10
%
The student
demonstrated
excellent
understanding
of the ratios
i.e. interpreted
all the
calculation
results
correctly.
The student
demonstrated
good
understanding
of the ratios
i.e. interpreted
most of the
calculation
results
correctly.
The student
demonstrated
adequate
understanding
of the ratios
i.e. interpreted
at least half of
calculation
results
correctly.
The student
demonstrated
poor
understanding
of the ratios
and
interpreted a
majority of the
calculation
results
incorrectly..
The student
demonstrated
very poor
understanding
of the ratios
and
interpreted
almost all of
the calculation
results
incorrectly.
Investment
Recommendati
ons
5%
The student
provided her
investment
recommendati
ons based on
excellent
justifications.
The student
provided her
investment
recommendati
ons based on
good
justifications.
The student
provided her
investment
recommendati
ons based on
mediocre
justifications.
The student
provided her
investment
recommendati
ons based on
poor
justifications.
The student
provided her
investment
recommendati
ons based on
very poor
justifications.

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Appendix 1: P/E Ratio
Price/Earning or P/E Ratio
= Current share price
Earnings per share (in number of times)
For example: Company B’s current share price is $5.00 per share. It’s
earning’s per share (based on the latest year) is $0.50. This means the
company’s price/earning ratio is 10 ($5.00/$0.50).
How to interpret: This ratio measures how expensive a share is. The higher
the P/E ratio, the more expensive a share is. In the example above, a P/E of
10 means that an investor will need to wait for 10 years to recoup his
investment. A higher P/E, say 20, means the investor will have to wait even
longer – 20 years - to claim back his original principal. A conservative investor
will normally pay no more than P/E of 15 for a share that he likes.
Appendix 2: Investment Recommendation
When determining whether the company that you are analysing is worth
investing in, you have to take into account 3 factors:
a) Profitability
b) Stability
c) Share price
In other words, the company must have demonstrated good profitability,
strong financial stability and its shares are available at a cheap price (i.e. P/E
of 15 or lower) to warrant an investment. To determine good profitability and
strong financial stability, refer back to the profitability and stability ratios that
you have calculated and look at the overall picture of these 2 groups of ratios.
There are no hard and fast rule about what really qualifies as good profitability
and strong financial stability so there is some subjectivity regarding that.
However, it is useful to ask yourself (honestly) whether you think the company
is profitable and stable. If the answer is not a resounding yes, then it would be
wise to not invest in the company.
If you think that the company has good profitability and stability, and it is also
currently available at a cheap price (i.e. P/E below 15), then you can
recommend the company’s shares as suitable for investment.

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Appendix 3: Other Frequently Asked Questions (OFAQs)
1. Which profit figure should I use to calculate ratios like Profit Margin,
Return on Equity, etc.?
You can use either the profit figure before deducted by the tax expense
(commonly known as operating profit) or the profit figure after deducted by tax
(also commonly known as consolidated net profit). Just make sure to use the
same figure to calculate all the ratios that require this figure.
2. I can’t calculate the Selling Expense Ratio and the General Expense
Ratio because the selling expenses and the general (or administrative)
expenses have been added up together and shown as one single
amount in the P&L statement. What should I do?
You can go through the Notes Section of the Annual Report and see if the
company provides a breakdown of that lump sum figure. Failing that, you may
divide the lump sum figure by 2 and ‘pretend’ that half of the lump sum figure
is the total selling expenses and the other half is the total general expenses.
3. Where can I find the share price of the company I’m researching?
If the company is Malaysian, you can find it in the Business section of the Star
Newspaper. If the company is foreign, you can look up Yahoo Finance or
CNBC.com. And oh, to calculate the P/E ratio, please use the latest share
price, as in no more than 5 days before the submission date.
4. Which Earnings per Share (EPS) figure should I use? Diluted or Basic?
If both figures are not very different, then it doesn’t matter. Otherwise, please
use the Basic figure.
5. I can’t find the [insert name] figure/Everything looks so different from
the accounting reports I’ve learned/Oh my god what the %^$&#@ am I
looking at? HELP!!!!
First take a deep breath… Now, try to realize that although the items’ names
and format used in Annual Report may be different from what you have
learned so far, both of them still retained the same basic “look”. So the key is
to observe closely and guess intelligently what you think an item reported in
the Annual Report really is. For example, if you can’t find the “Cost of Goods
Sold” item in the Annual Report, try and think where it is normally located in
the P&L statement. Chances are it is still at the same usual “place” but has
been given a different name. Get it?
6. Can I ask/email you for help? I’m kinda stuck with this assignment.
Of course. However, please be advised that most of the time I will only give
you hints, not straight answers to your queries