CONFIDENTIAL 1 AC/FEB 2021/FAR670

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : FINANCIAL STATEMENT ANALYSIS

COURSE CODE : FAR670
EXAMINATION : FEBRUARY 2021
TIME : 2 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of three (3) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of :

i) the Question Paper

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 4 printed pages
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CONFIDENTIAL 2 AC/FEB 2021/FAR670

QUESTION 1

Presented below is a balance sheet for two hypothetical companies, company AB and
company XY as at 31 December 2020.

Company AB Company XY
(RM Thousands) (RM Thousands)
ASSETS
Current assets
Cash and equivalents 1,000 200
Short-term marketable securities 900 -
Accounts receivable 500 1,050
Inventory 300 950
Total current assets 2,700 2,200
Property, plant and equipment, net. 1,200 750
Intangible assets 200
Goodwill - 100
Total assets 3,900 3,250

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Accounts payable 650 1,200
Total current liabilities 650 1,200
Long term bonds 450 800
Total Liabilities 1,100 2,000

Total shareholders ‘ equity 2,800 1,250

Total liabilities and shareholders’ equity 3,900 3,250

You are required:

i. Prepare a vertical common-size balance sheet for both companies.

(7 marks)

ii. Based on the above vertical common-size balance sheet:

a. Elaborate the companies financial position as at 31 December 2020.

(18 marks)

b. Compare the ability of both firms in meeting their short term obligation.
(20 marks)
(Total: 45 marks)

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QUESTION 2

a.
2017 2018 2019
Accounts receivable turnover 10 times 15 times 20 times
Inventory turnover in days 25 30 30
Operating cycle ? ? ?

You are required to calculate:

i. Company operating cycle (in days) for year 2017, 2018 and 2019.
(4 marks)

ii. Evaluate the changes in operating cycle of the company for the three years
above.
(12 marks)

b. Sinar Bhd has a loan covenant requiring the company to maintain a minimum curret
ratio of 1.5 or above. At the end of 2019, current assets are RM40 million (RM2
million in cash, 18 million in accounts receivable, and RM20 million in inventory). Its
current liabilities are RM26 million.

i. If Sinar sells RM4 million in inventory on credit at a profit, how will this affect
its current ratio?

ii. If Sinar sells RM4 million in inventory on credit at its carrying value, how will
this affect its current ratio?

iii. If Sinar sells RM2 million in inventory at its carrying calue and pays off
accounts payable, how will this affect a quick ratio?
(9 marks)
(Total: 25 marks)

QUESTION 3

a. Abadi Bhd purchased new machine to be used in their manufacturing plant. The cost
of the machine is RM150,000 including RM5000 Freight charges. Abadi paid
RM10,000 to install the machine and RM5,000 to train their employees to use the
machine. Assuming the company have an option to either capitalize or expensing the
training cost incurred. Explain the impact of capitalizing the training expenses on
income statement.
(6 marks)

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b. For the year ended 31 December 2020, Angler Bhd had net income of RM2,500,000.
The company declared and paid RM200,000 of dividends on preferred shares. The
company also had the following common stock share information:

Share outstanding on 1 January 2020 2,000,000

Shares issued on 1 April 2020 400,000
Shares repurchased (treasury share) on 1 October/ 2020 (200,000)
Shares outstanding on 31 December 2020 2,200,000

You are required to calculate:

i. The company’s weighted average number of shares outstanding on

31/12/2020.
ii. The company’s basic earnings per share.
(5 marks)

c. Given the following information for Aspen Berhad

2018 2019 2020 (now)

Basic EPS 2.20 1.48 1.15
P/E ratio 12 25 37

i. Based on fundamental of investing, explain whether investor should purchase

the Aspen Bhd stock now?
(4 marks)

ii. Explain one possible reason for the PE ratio continue to increase despite a
decreasing trend in basic EPS.
(4 marks)

d. Explain the implication of poor cash flow position to the profitability of the firm.
(11 marks)

(Total: 30 marks)

END OF QUESTION PAPER

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