Calculate the profitability, liquidity and efficiency ratios for 2015 and 2016 based on its published financial statements. (Note: you have to show your calculations)

Question description

MY ORGANISATION NAME IS “CONTACT ENERGY LIMITED ORDINARY SHARES (CEN)’’

Calculate the following ratios for 2015 and 2016 based on its published financial statements. (Note: you have to show your calculations) (35 marks)

  • Profitability ratios:
  • Liquidity ratios:
  • Efficiency ratios:

Gross Profit Margin, Net Profit Margin, Return on Assets, Return on Stockholder’s Equity

Current ratio, Acid Test ratio, Cash ratio, Net Working Capital

Accounts Receivable Turnover, Inventory Turnover, Accounts Payable Turnover, Total Asset Turnover d. Leverage ratios:

Debt ratio, Equity ratio, Debt-Equity Ratio

e. Valuation and Growth ratios:

Earnings per share, Price/Earnings ratio

Question 2:

Analyse the organisation’s 2016 financial statements using ratio analysis and identify strengths, weaknesses, and recommendations for improvement.

(35 marks)

Part B – 30 marks

Question 3:

Your organisation is in need of $150,000 for 30 days for an investment. Having no source of additional unsecured borrowing, the firm must find secure short term lender.

The firm’s accounts receivable is quite low but its inventory is considered liquid and a reasonably good collateral. The book value of the inventory is $350,000 of which $150,000 is finished goods. You have the following options:

  • ANZ Bank will make $150,000 trust receipt loan against the finished good inventory. The annual interest rate on the loan is 13.5% on the outstanding loan balance plus a 0.25% administration fee levied against the $150,000 initial loan amount. As inventory is sold, the average amount owed is expected to be $80,000 per month.
  • ASB Bank will grant a loan of $150,000 against a floating lien on the book value of inventory for 35 days period on an annual interest rate of 14%.
  • Westpac Bank will loan $150,000 against a warehouse receipt on the finished goods inventory and charge 15% p.a. on the outstanding balance. A 0.5% warehousing fee will be charged against the average amount borrowed. Given the loan will be liquidated as inventory is sold, the average loan balance is expected to be $70,000.

Required:

  • Calculate the dollar cost of each of the proposed plans for obtaining an initial loan amount of $150,000. (6 marks)
  • Which plan do you recommend and why? (4 marks)
  • Critical discuss the advantages and disadvantages of debt financing and equity financing and evaluate the financial management models to provide improved returns on the investments of the business entity with the understanding of the money markets and investment process.(20 marks)
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