CLUSTER OF BUSINESS & MANAGEMENT

SEPTEMBER 2022

BDPW3103

INTRODUCTORY FINANCE

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1
 Table of Contents
QUESTION 1..........................................................................................................................................3
a) Calculate the following ratio for years 2020 and 2021..............................................................3
i. Current ratio 3
ii. Quick ratio 3
iii. Debt ratio 3
iv. Inventory turnover 3
v. Times interest earned 3
vi. Fixed asset turnover 3
vii. Net profit margin 4
viii. Return on equity 4
APENDEX 1........................................................................................................................................5
b) Summarise the performance of the firm based on the relevant profitability and debt ratio in
part (a)...............................................................................................................................................6
c) Explain the weaknesses of financial ratios analysis in evaluating a company’s performance....7
ONLINE CLASS PARTICIPANT.................................................................................................................8

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2
QUESTION 1
Answer

a) Calculate the following ratio for years 2020 and 2021.

i. Current ratio

ii. Quick ratio

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3
APENDEX 1

CHANTEKS BERHAD

BALANCE SHEET AS AT 31 DECEMBER 2020 AND 2021

2020 (RM’000) 2021 (RM’000)

ASSETS
Cash 15,000 30,000
Marketable securities 8,000 16,000
Accounts receivable 42,000 34,000
Inventories 50,000 60,000
Fixed assets 285,000 270,000
Total Assets 400,000 410,000

LIABILITIES AND EQUITY

Accounts payable 48,000 50,000
Notes payable 16,000 10,000
Accruals 6,000 5,000
Long-term debt 160,000 150,000
Common shares 120,000 120,000
Retained earnings 50,000 75,000
Total Liabilities and Equity 400,000 410,000

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4
b) Summarise the performance of the firm based on the relevant profitability and
debt ratio in part (a).

The net profit margin for the year 2020 is 5.6% and in the year 2021 is 9%. This
indicates that the firm’s net profit margin in year 2021 is higher than 2020. This
margin grew up in year 2021.

Therefore, the return on equity is 15% for the year 2020 is and 28% for year 2021. So,
it shows that return on equity for the year 2021 is higher.

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5
c) Explain the weaknesses of financial ratios analysis in evaluating a company’s
performance.

Financial ratio is an important tool in financial analysis but when the users apply the
financial ratios, they must take into consideration the weakness related to these
financial ratios. Among the weakness are:

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6
PART 2

ONLINE CLASS PARTICIPANT

1) (day 1) Hi guys,
The roles of a financial manager in a business organisation is to making decisions in
short-term and long-term investment and financing.

A company that grow rapidly will show a sudden increase in sales. This increase in
sale will require additional investment in the form of inventory and fixed asset such as
industrial plant and equipment. Therefore, the finance manager must determine the
type and quantity of assets a that must be bought in the short term and long term. At
the same time, the finance manager also thinks of the best way to fund the investment
in assets. For example, does the company have adequate funds to purchase the assets?
Would the company require load or equities? What are the implication of having
short-term or long-term debts?

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