FINANCIAL ACCOUNTING

Financial Accounting

Financial Accounting

Part A

Tobermoray LTD

 

Formula

2004

2005

2006

2007

Profitability

 

 

 

 

 

sales turnover index

Sales/Stock

8000/550 = 14.545 14

8400/600 =14

12600/700 = 18

13860/900 =15.4

Gross profit Margin

(Revenue -COGS)/Revenue

(8000-6000)/8000 =0.25

(8400-6300)/8400 =0.25

(12600-10800)/12600 =0.14285

(13860-11365)/13860 = 1.80014

Net profit Margin

Profit after tax/Revenue

(480/8000)*100

= 6

(525/8400)*100

=6.25

(525/12600)*100

=4.166

(375/13860)*100

=2.705

ROCE

EBIT/(Total Asset- Current Liability)

800/(5210-(600+80+200))

=0.184

840/(5295-(600+90+250))

=0.1928

1000/(7480-(970+90+200))

=0.160

800/(7400-(950+65+580))

=0.13104

 

 

 

 

 

 

Solvency

 

 

 

 

 

Current Ratio

Current asset/current liab

1570/880

=1.78

1905/940

=2.02

2080/1975

=1.053

2400/1770

=1.355

acid ratio

(Current asset- inventory)/current liab

(1570-550)/880

=1.159

(1905-600)/940

=1.38

(2080-700)/1975

=0.698

(2400-900)/1770

=0.847

interest coverage ratio

EBIT/Interest Expense

640/160

=4

700/17

=5

700/175

=2.33

500/125

=1.667

 

 

 

 

 

 

Capital Gearing

 

 

 

 

 

Debt to capital employed

EBIT/(LTD+Equity)

640/(2000+2330)*100

14.78

700/(1750+2605)*100

=16.08

700/(2500+3005)*100

=12.7

500/(2500+3130)*100

=8.8808

Debt to equity

Debt/Equity

2000/2330

=0.85

1750/2605

=0.67

2500/3005

=0.83

2500/3130

=0.798

 

 

 

 

 

 

Asset Utilization

 

 

 

 

 

stock turnover

COS/Stock

6000/550

6300/600

10800/700

11365/900

debtors collection

(Average Debtors / Credit Sales) x 365

(880/8000)*365

(925/ 8400)*365

(1380/12600)*365

(1500/13860)*365

creditors payment

(Payables/COSG)x365

(600/6000)*365

(600/6300)*365

(970/10800)*365

(950/11365)*365

Working capital cycle

Current asset-current liab

5210-880

5295-940

7480-1975

7400-1770

fixed asset turnover

Fixed Assets/Revenue

8000/3640

8400/3390

12600/5400

13860/5000

total asset turnover

Total assets/Revenue

8000/52100

8400/5295

12600/7480

13860/7400

WC

Revenue/total assets

8000/4330

8400/4355

12600/5505

13860/5630

 

 

 

 

 

 

Investors Ratio

 

 

 

 

 

return on SH

Net income/Equity*100

(80/2330)*100

(25/2605)*100

(150/3005)*100

(125/3130)*100

EPS

Net income/shares outstanding

80/2000

25/2000

150/2000

125/2000

P/E

Market price/EPS

150/0.04

150/00.125

150/0.075

150/0.0625

DPS

Div/shares outstanding

400/2000

500/2000

375/2000

250/2000

earning yield

EPS/share price

0.04/150

0.0125/150

0.075/150

0.0625/150

DY

dividend/share price

400/150

500/150

375/150

250/150

DC

EPS/Dividend*100

0.04/400*100

0.0125/500*100

0.075/375*100

0.0625/250*100

Ratios

 

 

2004

2005

2006

2007

Profitability

 

 

sales turnover index

14.54545455

14

18

15.4

Gross profit Margin

0.25

0.25

0.142857

0.180014

Net profit Margin

6

6.25

4.166667

2.705628

ROCE

0.184757506

0.192882

0.160772

0.13104

 

 

 

 

 

Solvency

 

 

 

 

 

Current Ratio

1.784090909

2.026596

1.053165

1.355932

acid ratio

1.159090909

1.388298

0.698734

0.847458

interest coverage ratio

4

5

2.333333

1.666667

 

 

 

 

 

Capital Gearing

 

 

 

 

Debt to capital employed

14.78060046

16.07348

12.71571

8.880995

Debt to equity

0.858369099

0.671785

0.831947

0.798722

 

 

 

 

 

Asset Utilization

 

 

 

 

stock turnover

10.90909091

10.5

15.42857

12.62778

debtors collection

40.15

40.19345

39.97619

30.51034

creditors payment

36.5

34.7619

32.78241

30.51034

Working capital cycle

4330

4355

5505

5630

fixed asset turnover

2.197802198

2.477876

2.333333

2.772

total asset turnover

0.65125

0.630357

0.593651

0.533911

WC

1.847575058

1.928817

2.288828

2.461812

 

 

Investors Ratio

 

 

 

 

return on SH

3.433476395

0.959693

4.991681

3.99361

EPS

0.04

0.0125

0.075

0.0625

P/E

375

1200

200

240

DPS

0.2

0.25

0.1875

0.125

earning yield

0.000266667

8.33E-05

0.0005

0.000417

DY

2.666666667

3.333333

2.5

1.666667

DC

 

0.01

0.0025

0.02

0.025

Part B

Liquidity Analysis

The liquidity of the Tobermoray has been increasing. The current ratio and Acid test ratio demonstrate the short-term liquidity picture of the company which is doing well comparing from the last year. But if look this figure in 2005 it was 2.0265 which was 48% [(2.025-1.053)/2.025] more than in 2006. This shows a decline faced by the company in 2005. As far as 2004 current ratio is concern it was far better than in current year 2007. Hence, the liquidity of this company declined from 23 %[( 1.355-1.78)/1.78] in this four years 204-2007.

The acidic ratio indicates company's ability to pay off their short term obligation immediately without selling their inventories. In 2004 Tobermoray AR was 1.15 which states that company can 1.15 times their current obligations. Moreover, AR ratios trend has been reducing since 2005 which indicates that company is highly depended on the sale of their inventory as their current ratio is not reducing with same percentage as AR. In 2005 it was 1.388 while it was 0.698 in 2006 a 50% decline and in 2007 it was 0.847 which shows that company is managing to be liquid stage. Nevertheless, less than 1indiates that company is unable to pay off their immediate short term obligations which are also a negative impact on the banks and investors and shareholders (Shim & Siegel 2009, p. 22).

Interest cover ratio of Tobermoray is also demonstrating a negative trend as it was 4x in 2004 while it was 5x in 2005 which is increasing and showing that company can easily pay interest on outstanding debts i.e. company can pay 5x interest on it outstanding debts. However, Tobermoray ICR declined in 2006 with 2.33 that was 53% reduction in this ratio and hence in 2007 it reduces to 1.66 which indicates that company ability to meet their interest expenses may be questionable and Tobermoray is not generating an enough revenues to satisfy their interest expenses.

To sum, the short term liquidity picture implies that the company has a weak short term liquidity situation. However, the liquidity should be above 1 which express that company is liquid and can overcome their short term obligations. This can be an attractive to the investors as the company has ability to pay off their debt is not so much ...