Strategic Financial

Analysis and Design

Muneeb Gul

23742

Assignment # 1

Sensitivity: Public
 B B
Non Current Assets
PPE 190,000 Sales (10% cash) 164,000
Long-term deposits 26,000 CGS 64,000
216,000 GP 100,000
Current Assets Other Exp/(income) (8,500)
Stores & Spares (Tools, stationery etc) 3,300 Selling & Admin Exp 27,000
Stock in trade (Inventory) 5,000 Finance cost/Interest 1,000
Trade debts (Receivables) 131,000 Income before tax 80,500
Loans & Advances 2,500 Tax 18,000
Investments 8,200 Net Income / (loss) 62,500
Cash & bank 8,000 Share price 30
158,000 Dividend per share 3
Total Assets 374,000

Share Capital & Reserves

Share Capital (par 10/share) 22,000
Reserves 78,000
Unappropriated profits 21,000
121,000
Surplus on revaluation of PPE -

Non Current Liabilities

Deferred tax 65,000

Current Liabilities
Trade & other payables 108,000
Accruals 1,000
Short term loan 73,000
Provision for tax 6,000
188,000
Total Equity & Liabilities 374,000

Sensitivity: Public
 Financial Ratios:

LIQUIDITY  
Current Ratio  
(current assets / current liabilities) 0.84
   
Quick Ratio  
(quick assets / current liabilities) 0.78
   
Cash Ratio  
(cash + mkt sec / current liabilities) 0.09

Comments: Liquidity ratios shows firm having liquidity issues and will be seeing troubles in
meeting current liabilities. Company can switch from short term debt to long term debts.
SOLVENCY  
(debt/total assets) 0.20
(debt/equity) 0.60
(Assets/Liabilities) 1.48
(EBIT/Interest) Interest Coverage 64.50

Comments: Solvency ratios shows a company is able to satisfy its long-term debt and have
potential for that.
EFFICIENCY  
Inventory Turnover  
(CGS/Average Inventory) 12.80
   
Inv TO Days  
(360/ITO) 28.13
   
Receivable Turnover  
(Credit Sales / Average Receivables) 1.13
   
Rec TO Days  
(360/RTO) 319.51
   
Assets Turnover  
(Net Sales / Assets) 0.44

Comments: Above ratios suggests that company is doing well with its inventory resources
and is managing it well, sales are good as well throughout the period and turnover is looking
good for the company as well but most of the sales is credit based and the customers do not
pay off receivables on time that can cause issues with working capital of the company and

Sensitivity: Public
 could raise scenarios for more borrowing to manage operations. Company is having issues
with generating sales efficiently with assets. This depicts the sales are very less for the
company.

PROFITABILITY  
Gross Profit / Sales 0.61
EBIT/Sales 0.50
Net Income / Sales 0.38
ROI (NI/Equity) 0.52
ROA (NI/Assets) 0.17
DUPONT  
ROE = NI/Sales * Sales/Assets *
Assets/Equity 0.52

Comments: Profitability ratios are more than the industry average and showing the company
is performing well with its earnings. Operating income figures shows that expenses are less
than average and so as the case for net income which is more than industry average though the
short-term debts are not confirming this condition.

VALUATION  
Yield = Dividend per share / Share Price 0.10
EPS = NI/No. of Shares 0.28
P/E = Market Price / EPS 105.60

Comments: Above ratio analysis shows that the investors are willing to pay more and thus
this company can sell some shares to increase assets and cash flow and thus favoring
company’s operations and increasing the liquidity.
ALTMAN - Z Score
WC/TA -0.08 1.20 -0.10
RE/TA 0.26 1.40 0.37
EBIT/TA 0.22 3.30 0.72
MV.E/TL 0.26 0.60 0.16
S/TA 0.44 1.00 0.44

    1.59
Z Score

Comments: Even the profitability ratios are very charming, but these are stated by the
company. Above Z score analysis shows that the company has done some manipulation in the
earnings and is prone to high risk of bankruptcy in coming future.

Sensitivity: Public
 CY LY CY LY
Non Current Assets
PPE 880,000 555,000 Sales (10% cash) 1,966,000 1,890,000

Long-term deposits - - CGS 1,916,000 1,850,000

880,000 555,000 GP 50,000 40,000
Current Assets Other Exp/(income) 3,000 3,000
Stores & Spares (Tools, stationery etc)
20,000 18,000 Selling & Admin Exp 58,000 55,000

Stock in trade (Inventory) 161,000 140,000 Finance cost 21,000 24,000

Trade debts (Receivables) 142,000 128,000 Income before tax (32,000) (42,000)
Loans & Advances 33,000 21,000 Tax 8,000 6,000
Investments 22,000 24,000 Net Income / (loss) (40,000) (48,000)
Cash & bank 2,000 4,000 Share price 340 300
380,000 335,000 Dividend per share 2 2
Total Assets 1,260,000 890,000
Depreciation 160,000 80,000
Share Capital & Reserves Cash from operations 12,000
Share Capital (par 10/share) 8,000 8,000
Reserves 183,000 183,000
Unappropriated profits 152,000 112,000
343,000 303,000
Surplus on revaluation of PPE 465,000 -

Non Current Liabilities

Deferred tax 106,000 87,000

Current Liabilities
Trade & other payables 115,000 168,000
Accruals 4,000 12,000
Short term loan 210,000 310,000
Provision for tax 17,000 10,000
346,000 500,000
Total Equity & Liabilities 1,260,000 890,000

Sensitivity: Public
 M Score Model by Messod Beneish

Ratio Weight M Score

Beneish - M Score

DSR CY (sales/rec)/ LY (sales/rec) 0.937656 0.92 0.86264352

GM LY (GP/Sales) / CY (GP/ Sales) 0.832169 0.528 0.439385232

CY[1-(Current Assets + PPE + Securities) ÷ LY[1-(Current Assets

1.42 0.404 0.57368
+ PPE + Securities)

SG (CY sales / LY sales) 1.04 0.892 0.92768

Dep = LY(Dep/PPE+Dep) ÷ CY(Dep/PPE+Dep) 0.82 0.115 0.0943

SGAE = CY(SGAE/Sales) ÷ LY(SGAE/Sales) 1 -0.172 -0.172

LV = CY[(Current Liabilities + Long term Loan)/Total Assets] ÷

0.488794 4.679 2.287067126
LY[(Current Liabilities + Long term Loan)/Total Assets]

TATA = CY(Income from Operations – Cash flow from

-0.02 -0.327 0.00654
Operations) ÷ Total Assets

-4.84 -4.84
 

    0.183836
M Score

M score numbers suggests that there is manipulation in the figures of earnings.

Sensitivity: Public