Business Administration B Examination Spring 2022

2,100
Part “Fundamentals of
Financial Management”

Answer sheets

Last name:

First name:

Matriculation Nr.:

Grading

Awarded points:

University of St.Gallen — School of Management, Economics, Law,

Social Sciences, International Affairs and Computer Science
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Part “Fundamentals of Financial Management” 135

1 Short-answer questions 30

1.1 Controlling is an important management process (1P) through which 3

internal (financial) data is provided (1P), which is essential for operational
decisions (0.5P) and the strategy work (0.5P) of management.
1.2 Net assets (0.5P): based on the statement of financial position (0.5P) 4
Earnings (0.5P): based on the statement of profit or loss (0.5P) and statement
of comprehensive income (0.5P)
Financial situation (0.5P): based on the cash-flow statement (0.5P)
Equity (0.5P): based on the statement of changes in equity (0.5P)
Lecture 1, Slide 24
1.3 Liabilities are defined as: 3
• a present obligation (0.5P) (of the enterprise)
• arising from a past events (0.5P),
• the settlement of which is expected to result in an outflow (0.5P) of
resources from the enterprise embodying economic benefits.
However, liabilities need only be disclosed (0.5P) if:
• it is probable (0.5P) that the resource will result in an outflow of
resources embodying economic benefits to the enterprise, and
• the amount of the resource outflow can be reliably measured (0.5P).
1.4 The statement of cash flows from investing activities is intended to provide 3
information on the use of funds for future earnings potential (1P). A negative
value is expected (1P) because this means that money is flowing out for
investments (1P).
1.5 The following events flow into the cash flow from financing activities: 4
• Dividend payment -80
• Repayment of a loan -120
• Issue of a bond +80
• Taking out a mortgage for real estate +20
• Increase in Shareholders’ capital +20
• Capital reserve +180
0.5P for each position with correct sign / word (inflow, outflow)
Additional 1P if result of 100 is correct.
1.6 To achieve a profit of CHF 100'000, the contribution margin must cover the 3
fixed costs and this profit. Fixed costs plus profit equals CHF 2,600,000 (1P),
the contribution margin per unit equals CHF 3,700 (1P). Consequently 2.6
million / 3,700 = 702.7 units. He must therefore sell 703 units (1P).
1.7 • Usually have no right to participate in management of the company 3
• Have legal claim to repayment of the amount granted
• Provide capital only for a limited period of time
• Are usually entitled to a fixed remuneration (interest)
1P per aspect, max. 3P. The first three points are evaluated.
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1.8 A bond with the additional right for the buyer to convert the bond into shares 4
(1P). When exercised, there is a transfer from debt to equity (1P). It is an
instrument of mezzanine financing (1P), as it has aspects of both equity and
debt financing (1P).
1.9 Calculated as 1-(157.50/450) = 65% (1P). 3
Plowback ratio shows that 65% percent of profits are retained within the
company (1P). It shows the degree of self-financing (1P).
2 Case study Painful Accounting AG 20

2.1 Preparation of the cash-flow statement 9

Operating Activities:
EBIT 45
Depreciation / appreciation on non-current assets 36
Increase / decrease of provisions 21
Increase / decrease of inventories, receivables and other
-66
non-current assets that are not investing or financing
Increase / decrease of payables and other liabilities that
21
are not investing or financing
Interest paid -6
Taxes paid -15
= Cash Flow from Operating Activities 36

Investing Activities:
Cash inflow from disinvestment of plant & equipment and
18
intangible assets
Payments for investment of plant & equipment and intangible
-42
assets
Cash inflow from disinvestment of financial assets 6
Payments for investments in securities 0
= Cash Flow from Investing Activities -18

Financing Activities:
Cash inflow from increase of share capital 0
Payments to owners (dividend) -54
Cash inflow from issuing bonds and taking on financial debt 39
Payments for paying back bonds and financial debt 0
= Cash Flow from Financing Activities -15

0.5P for each correct entry

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2.2 Transactions on statement of financial position, statement of profit or loss, 11

and statement of cash flows

Trans. Statement of Statement or Statement of

financial position profit or loss cash flows
a. Inventories +250 0 Cash Flow from
Cash -250 Operating Activities
-250

b Provisions +100 Expenses -100 0

Equity -100

c Inventory -90 Sales +150 0

Receivables +150 COGS -90
Equity +60 (or cost of production)

d Cash -75 0 Cash Flow from

Equity -75 Financing Activities
Or debt or distribution -75

e Receivables -150 0 Cash Flow from

Cash +150 Operating Activities
+150

0.5P for each correct entry

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Part “Fundamentals of Financial Management” 135

3 Case study Geberit 40

3.1 Ratios 10

Quick Ratio:
2021:(511.0+162.9) / (907.8) = 74.23%
2020: (468.6+195.0) / (572.7) = 115.87%

Equity and long-term capital to non-current asset ratio:

2021: (1987.7+876.7) / 2632.0 = 108.83%

2020: (1922.0+1256.3) / 2675.4 = 118.80%

Return on equity:
2021: 755.7 / ((1987.7+1922.0)/2) =38.66%
2020: 642.3 / ((1899.0+1922.0)/2) = 33.61%

1P for each correctly calculated ratio

Liquidity: Quick ratio deteriorated (1P)

Profitability: Return on equity increased (1P)
Leverage/Security/Safety: Equity and long-term capital to non-current asset
ratio deteriorated (1P)

Exceptionally high profitability with very solid liquidity and safety ratios (1P
for "good" with profitability highlighted)

Note: Points are awarded for the interpretation of the ratio only if the ratio was
calculated correctly.
3.2 Cost structure 6
Amounts in millions
Contribution margin = Net sales - cost of materials
2021: 3460.5-996.8 = 2463.7 (0.5P)
2020: 2986.1-788.7 = 2197.4 (0.5P)

Fixed costs = Total net operating expenses - cost of materials

2021: 2558.9-996.8 = 1562.10 (0.5P)
2020: 2214.6-788.7 = 1425.90 (0.5P)

Operating leverage = DB / ( DB - fixed costs )

2021: 2463.7 / 901.60 = 2.73 (1P, no follow-on errors)
2020 2197.40 / 771.5 = 2.85 (1P, no follow-on errors)

Operating leverage has decreased, indicating that the proportion of fixed costs
has decreased (1P), indicating less risk (1P).
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3.3 Financing 4

Short-term financial liabilities increased sharply from 2020 to 2021 (approx.

CHF 300 million), while long-term financial liabilities decreased significantly
(approx. CHF 300 million) - i.e. by almost the same amount. (2 points)

There was a conversion (0.5 points) from long-term to short-term financial

liabilities.

It can be assumed that it is a long-term financial liability (loan, credit, bond -

0.5 points) that will fall due in the course of the next 12 months (0.5 points)
from the balance sheet date and therefore becomes a short-term financial
liability (because time horizon short-term < 12 months; 0.5 points).

The reasoning must not be inconsistent with the cash flow statement. A
repayment of the long-term and an issue of a short-term bond is not awarded
points because it contradicts the cash flow statement. If instead of
increase/decrease in the description of the change, borrowing/repayment is
directly mentioned, only 1 point is awarded. If only small changes are
mentioned, 0.5 points are deducted.

3.4 Free Cash Flow 6

FCF = operating cash flow - investment cash flow - minimum dividend
2021= 998.9-161.8 – 404.5 = 432.60 (1P)
2020 = 900 – 127.8 – 404.0 = 368.20 (1P)

Where on the financial statements?: To be seen in the cash flow from financing
activities (1P):

Use of the free cashflow:

Some net financial liabilities are repaid (1P), plus a share buyback program
is underway (1P). There is also a cash outflow from trading in treasury shares
(1P), plus an increase in cash and equivalents (1P). Increased dividend
compared to previous year (1P), repayment of leasing obligations (1P) can
also be observed. Investments in property, plant and equipment and intangible
assets ONLY accepted if an explicit reference is made to the previous year or
to the coming financial year 2022 (1P).

NOTE: The question is open-ended and allows the maximum score of 6 to be

achieved without mentioning all 10 possible points from the sample solution.
No bonus points will be awarded.
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3.5 Goodwill 4
Goodwill arises on the purchase of a company or the acquisition of a business
unit (1P). In the case of acquisitions, the buying company first re-evaluates all
assets and liabilities of the acquisition object. However, the purchase price
agreed to for the transaction is often higher than the actual value of the
revalued net assets (assets minus liabilities) of the acquired business (1P). This
difference between the acquisition price and the revalued net assets is referred
to as goodwill and must be capitalized by the buyer (1P). Goodwill is not
amortized (1P) but is written down if necessary.
3.6 Company valuation InnoToilet Ltd. 10
Discounting of free cash flows period 1-5
650m / 1.09 = 596.33m (1P)
680m / 1.092 = 572.34m (1P)
720m / 1.093 = 555.97m (1P)
775m / 1.094 = 549.03m (1P)
845m / 1.095 = 549.19m (1P)

Terminal value in t=5: (845m * 1.005) / (0.09-0.005) = 9 990.88m (1P)

Since TV in t=5 discount to t=0: 9990.88m/1.15 = 6493.386m(1P)
Total present value of all FCF incl. TV 9 316.25 (1P)

EBITDA = 150 + 354 + 220 = 724 (1P)

Multiple 12.5 * EBITDA = 9 050 (1P)

Part “Fundamentals of Financial Management” 135

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4 The multiple-choice questions have a separate answer sheet. 45

1) D
2) C
3) B
4) D
5) C
6) cancelled
7) D
8) A
9) C
10) D
11) C
12) B
13) D
14) B
15) A