Extra notes BBMF2813 Financial

Management
Prepared by: Frederick Chong Chen
Tshung
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Menara Gading Sdn. Bhd.

Income Statement
for the year ended 31 December 2008

(RM'000)

Sales 320,000
Less: Cost of goods sold 192,000
Gross profit 128,000
Less: Operating expenses 94,000
Operating profit (earnings before interest and tax) 34,000
Less: Interest 12,200
Earnings before tax 21,800
Less: Tax (at 30%) 6,540
Net Income 15,260

Profit available to ordinary shareholders : RM14,760

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Menara Gading Sdn. Bhd.Balance Sheet

as at 31 December 2008

(RM'000) (RM'000)
ASSETS
Current Assets:
Cash and marketable securities 1,000
Account receivables 32,000
Inventories 91,000
Total current assets 124,000

Fixed Assets:
Land 52,000
Plant and equipment 200,000
Less: Accumulated depreciation 76,000 124,000
Total fixed assets 176,000
TOTAL ASSETS 300,000

LIABILITIES AND OWNERS'S EQUITY

Current Liabilities:
Account payable 44,000
Short-term debt 94,000
Total current liabilities 138,000

Long-term Liabilities:
Long-term debt 45,900

Owners' Equity:
Ordinary shares 63,000
Retained earnings 53,100
Total Liabilities and Owners' Equity 300,000

Numbers of shares issued: 20,000 Market

Price:RM3.50 Dividend per share:RM0.18
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RATIO 1 WORKINGS

Profitability Ratio

Gross Profit Margin =RM128,000/RM320,000 x100%= 40%

Net Profit Margin =RM15,260/RM320,000 x100%= 4.78%

Operating Profit Margin =RM34,000/RM320,000= 10.63%

Return on Asset =RM15,260/RM300,000 x100%= 5.09%

Suppose a company has the following financials:

• Profit Before Interest and Tax (PBIT): RM200,000

• Shareholders' Funds: RM500,000
• Non-current Liabilities: RM350,000

RATIO 2 WORKINGS

Profitability Ratio

ROCE =RM200,000/ RM500,000+RM300,000=25%

Let's go through an example to understand how this calculation works:

Suppose a company has the following financial figures:

• Net Income (Profit After Tax): $150,000

• Preference Dividends: $20,000
• Ordinary Shareholders' Equity: $400,000
RATIO 3 WORKINGS

Profitability Ratio

ROE =$150,000- $20,000/$400,000= 32.5%

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To provide an example calculation for each, we would need actual figures for non-current
liabilities, capital and reserves, and capital employed. However, I can show you how to calculate
these ratios with hypothetical numbers.

Let's assume the following for a company:

• Non-current liabilities: $200,000

• Capital and reserves: $500,000
• Capital employed: $700,000

Financial Gearing Ratio 1 WORKINGS

Debt to equity $200,000/$500,000=40%

Debt to total capital employed $200,000/$700,000=28.57%

Let's use hypothetical figures to illustrate how this calculation is done:

• Profit before Interest and Tax (EBIT): $120,000

• Interest Expense: $30,000

Financial Gearing Ratio 2 WORKINGS

Interest coverage $120,000/ $30,000=4

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Financial Gearing Ratio 3

Let's use hypothetical figures for an example:

• Fixed operating costs: $80,000

• Variable operating costs: $20,000
• Total operating costs: Fixed costs + Variable costs = $80,000 + $20,000 = $100,000

Now we'll calculate the operational gearing using both formulas:

1. Using the first formula:

Operational gearing=80,00020,000×100Operational gearing=20,00080,000×100
Operational gearing=4×100Operational gearing=4×100 Operational gearing=400%
Operational gearing=400%
2. Using the second formula:
Operational gearing=80,000100,000×100Operational gearing=100,00080,000×100
Operational gearing=0.8×100Operational gearing=0.8×100
Operational gearing=80%Operational gearing=80%

RATIO WORKINGS

Liquidity Ratios

Net Working Capital =RM124,000-RM138,000=-RM14,000

Current ratio =RM124,000/RM138,000=0.8986

Quick ratio =RM124,000-RM91,000/RM138,000=0.2391

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Efficiency/Activity Ratios
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Investors Ratio

For a calculation example, assume:

• Profit Available to Ordinary Shareholders: $500,000

• Weighted Average Number of Ordinary Shares: 250,000

$500,000/200,000= $2.50
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