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Financial statement analysis

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Table of Contents PART A..................................................................................................................................... 1 (1) Objectives of financial statements...............................................................1 (2) Conceptual Framework 2010......................................................................... 1

(3) Dupont analysis...................................................................................................1 (4) Changes in working capital.............................................................................1 (5) Earning quality.....................................................................................................2 PART B..................................................................................................................................... 2 (6) Ratio calculations................................................................................................2 (7) Interpretations..................................................................................................... 2 (8) Recommendation................................................................................................2 (9) Cash flow and profit...........................................................................................2 REFERENCE............................................................................................................................3 APPENDIX............................................................................................................................... 1 Sample Assignment on Financial statement analysis For more assignments Visit: INSTANT ASSIGNMENT HELP AUSTRALIA OR Call us at:+61 879 057 034

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PART A

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(1) Objectives of financial statements 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). They determine the security of their funds. Further, they require timely the interest and principal payments. Their expectations about return are highly depend upon the amount, timing and the uncertainty of the business future cash flows. Thus, they assess the business ability to get higher the amount of profitability and its stability. They determine the Government and other agencies are interested to know the business activities to ensure efficient allocation of resources so as to improve their tax incomes. (2) Conceptual Framework 2010 (a) Full disclosure principle says that all the required information for investors, lenders and other users should be disclosed in the financial statements. Going concern principle assumes that company will operate for a longer time period (Scott, 2014). Further, Business entity principle says that all the business is separate from the entity. Therefore, financial statement shows only the business transaction not the owner's personal transaction. (b) Relevance characteristic says that all the relevant information should be disclosed because misstatements can influence the user decisions negatively. Another characteristic is comparability, says that all Pay someone to do your assignment Australia for A+grade in your academics.

Get 5 Assignment at the Price of 4 the financial information must be comparable to the other accounting periods (Edwards, 2013). Therefore, users can identify the comparative changes and trends of the business performance and the financial position. (3) Dupont analysis

(a) It is a measurement of return on equity through identifying the operational efficiency, assets uses efficiency and financial leverage (Chang, Chichernea and HassabElnaby, 2014). Sample Assignment on Financial statement analysis For more assignments Visit: INSTANT ASSIGNMENT HELP AUSTRALIA OR Call us at:+61 879 057 034

ROE = Profit margin*Total assets turnover*assets to equity Calculation is enclosed in appendix (b) Interpretation: The profit margin, assets turnover and financial leverage ratios of the company are 0.0625, 0.711 and 1.73 respectively. Therefore, the return on equity is 7.69%. Thus, it can be recommended that company has to maintain its assets in an efficient manner. Further, it has to improve its profitability percentage so as to increase its business performance. This in turn helps to enhance return on equity. (4) Changes in working capital (a) Calculations Enclosed in Appendix (b) Interpretations Pay someone to do your assignment Australia for A+grade in your academics.

Get 5 Assignment at the Price of 4 From the above statement, it can be concluded that company is increasing its current assets and decreasing its current liability so as to improve the working capital (Financial Ratio Analysis, 2015). This in turn helps organization to increase the ability to pay its short term obligations. Moreover, it helps business to improve the growth in future period.

(5) Earning quality Investors determine the earning capacity of the organization. Decreasing trend of earnings result in reducing the business growth. Decreased business profits, earning per share, price to earnings growth ratio, negative cash flow, inadequate liquidity and decreased solvency position indicate decreased earning capacity of the business (Reimers, 2013).

PART B (6) Ratio calculations Enclosed in Appendix (7) Interpretations Fraser & Neave gross profit tends to increase while the net operational results get declined to 6.25% because of high operating cost. However, net cash flow of the company is negative amounted to -9. Moreover, liquidity of the company gets declined (DRURY, 2013). Further, business has no solvency position to pay its long term liabilities because of negative net cash flow. Thus, business is not able to pay its finance obligations out of cash inflow.

Further, the earning per share gets

declined to 7.69% that indicates lower shareholder returns. (8) Recommendation Mr. Shinawatra has to improve its sales and profitability so as to avail positive cash flow.

Further, operating cost should be declined for

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Get 5 Assignment at the Price of 4 getting higher amount of profits. It helps to improve the business performance (Zimmerman and Yahya-Zadeh, 2011). On contrary, business has to increase its solvency position so as to financially strengthen its position. This in turn helps company to attract new investors. Sample Assignment on Financial statement analysis

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(9) Cash flow and profit Operating profits and cash flows are different because profitability statements involve both the cash and non cash expenditures such as depreciation. Further, transactions are recorded on accrual basis not on cash basis (Lee, 2014). Therefore, it may be possible that cash flows can be negative in case of profit availability.

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REFERENCE

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Books and Journals Bushman, R. M. and Smith, A. J., 2001. Financial accounting information and corporate governance. Journal of accounting and Economics. 32(1). pp.237-333.

Chang, K.J., Chichernea, D.C. and HassabElnaby, H.R., 2014. On the DuPont analysis in the health care industry. Journal of Accounting and Public Policy. 33(1). pp.83-103. DRURY, C. M., 2013. Management and cost accounting. Springer. Edwards, J. R., 2013. A History of Financial Accounting (RLE Accounting) (Vol. 29). Routledge. Lee, T. A., 2014. Cash Flow Reporting (RLE Accounting): A Recent History of an Accounting Practice. Routledge. Reimers, J. L., 2013. Financial Accounting: Pearson New International Edition: A Business Process Approach. Pearson Higher Ed. Scott, W. R., 2014. Financial accounting theory. Pearson Education Canada. Zimmerman, J. L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education. 26(1). pp.258259. Online Financial Ratio Analysis, 2015. [Online]. Available through: <http://www.slideshare.net/algelyee/financial-ratio-analysis-finalreport>. [Accessed on 22 December 2015].

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APPENDIX

Calculation of Return on Equity: Profit margin

Profit /sales

0.0625

Total assets turnover

0.71111111

ratio

Sales/Assets

11 1.73076923

Financial leverage

Assets/Equity

Profit margin*Assets ROE

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

Inventory

869

786

Payables

1035

1360

325

Net cash flow from operating activities

951

Ratio Calculations: Company data Ratios

Formula

2013

2014

2015

PBIT/Equity and NCL

16.00%

15.00%

20.66

Return on capital employed

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Get 5 Assignment at the Price of 4 Gross profit percentage Net margin

Gross profit/Revenue * 100 30.00%

35.00%

37.5

Net margin /revenue*100

19.00%

18.00%

6.25

NCL/Revenue

15.00%

14.00%

-5.625

Net cash inflow coverage

Cash and Quick ratio

receivable/payables

1.5

1.1

Solvency ratio

Net cash inflow/equity

25.00%

29.00%

-6.92

interest cover

Net profit/Finance cost

3.2

2.7

Cash based

Net cash inflow/Finance

interest cover

cost

2.4

-1.8

Receivable/Revenue*365

57.03

Net profit/Equity

7.69

Profit based

Receivable collection period Earnings per share

Calculation of ratios for the year 2015 Ratios

Formula

Return on capital employed

(In $000) 25/(130-

PBIT/Equity and NCL

9)*100

2015 20.66115 70248

Gross profit/Revenue * Gross profit percentage 100

60/160*100

37.5

10/160*100

6.25

Net margin Net margin

/renvenue*100

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Get 5 Assignment at the Price of 4 Net cash inflow coverage

NCL/Revenue

(9)/160*100

-5.625

Cash and Quick ratio

receivable/payables

30/30

1 6.923076

Solvency ratio

Net cash inflow/equity (9)/130*100

9231

Profit based interest cover

Net profit/Finance cost 10/5

Cash based interest

Net cash

cover

inflow/Finance cost

Receivable collection

Receivable/Revenue*3

period

(9)/5 25/160*365

-1.8 57.03125 7.692307

Earning per share

Net profit/Equity

10/130*100

6923

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