FINANCIAL STATEMENT ANALYSIS

BBA (HONS) 7th Term

Q No.1: A condensed balance sheet for Durham Corporation prepared at the end of the year appears
below:
Assets Amount Liabilities & Stockholder’ Equity Amount
Cash Rs. 55,000 Notes Payable ( due in 6 months) Rs.40,000
Accounts Receivables 155.000 Accounts Payable 110,000
Inventory 270,000 Long-term Liabilities 330,000
Prepaid Expenses 60,000 Capital Stock, $5 par 300,000
Plant & Equipment (net) 570,000 Retained Earnings 420,000
Other Assets 90,000
Total Rs.1,200,000 Total 1,200,000

During the year the company earned a gross profit of Rs.111,600 on sales of Rs.279,000. Accounts receivable,
inventory, and plant assets are remained almost constant in amount throughout the year.
INSTRUCTIONS:
Compute the following:
a. Current ratio. b. Quick ratio. c. Working capital. d. Debt to Equity ratio. e. Inventory turnover. f.
Accounts receivable turnover (all sales were on credit) g. Book value per share of capital stock. (10 Marks)

Q.No.2. Presented Below is the financial information of two companies Imperial Store and Wadud Sons belonging to the
same industry:
Information Imperial Stores Wadud Sons
Current Ratio 3 to 1 2 to 1
Acid Test Ratio 1.8 to 1 1.1 to 1
Debt to Equity 30% 40%
Time interest earned (Interest Coverage Ratio) 6 5

Assume you are loan officer of a bank and both the companies have requested a loan of a equal amount to be repaid over
the next two years.
1) If you could grant a loan to only one company which would it be? Explain. (5 Marks)
2) If you could grant a loan to both the companies would you be willing to do so? Explain. (5 Marks)

Q.No3. Following are the balance sheets of Real Ltd. as on 31 March 2010 and 2011.

Assets 2010 2011 Liabilities & Share Capital 2010 2011

Land & buildings Rs.1,620 Rs.1,040 Share Capital Rs.2,400 Rs.3,600
Plant & Machinery 1,860 4,716 Reserves & Surplus 1,872 2,124
Furniture & Fixtures 54 108
Other Fixed Assets 120 180 Debentures 300 600
Long-terms Loans (Advances) 276 354 Long-term Debt 900 1,530

Stock 960 780 Bills Payable 1,530 702

Bill Receivable 1,254 1,120 Other Current Liabilities 42 60
Other Current Assets 174 240
Prepaid Expenses 18 18
Cash & Bank Balances 708 60
Total Rs.7,044 Rs.8,616 Total Rs.7,044 Rs.8,616

Analyze the financial position of the company with the help of the Common Size Balance Sheet. (10 Marks)

Q.No.4. The The New Khan Bus company has current assets of Rs.160,000 and current liabilities of Rs.100,000. What
effect would the following transactions have on the firm’s current ratio (and mentioned the resulting figure)? Deal each
case separately. (10 Marks)
1. Two new buses are purchased for total of Rs.200,000 in cash
2. The company borrows Rs.200,000 short term to support the increase in receivables of the same amount?
3. Additional common stock of Rs.400,000 is sold and proceeds invested in expansion of several terminals.
4. The company increases its accounts payable to pay dividend of Rs.80,000 out of cash.

Q.No.5. Thunder Alley Corporation supplies parts for Indianpolis-type Race cars. Current market price per share of
Thunder Alley’s common shares is Rs.40. The latest annual report showed Net Income of Rs.2,250,000 and total
common shareholder’s equity of Rs.15 million. The report also listed 1,750,000 shares common outstanding. No
common stock dividend are paid.
Calculate:
1. Thunder Alley’s Earning Per shares (EPS)
2. Thunder Alley’s Price to Earning (P/E) Ratio
3. Thunder Alley’s Book Value Per Share
4. Thunder Alley’s Market to Book ratio

Q.No.6. Consider the following operating figures;

Particulars Amount in Rs
Sales 1,079,143
Less: Cost & Deductions:
Cost of Sales 792,755
Selling & Administration 264,566
Interest Expense 4,311
Income Tax 5,059
Net Income 12,452

Note: Depreciation expense totals Rs.40,0000

Calculate:
1. Compute the time interest earned
2. compute the cash basis time interest earned

Q.No.7. List the parties demanding financial statement. Explain any four amongst them?

Q.No.8. write short note on any THREE of the following:

1. Going concern
2. stable dollar assumptions
3. Matching principles
4. Business Entity