Answer To: Image
Vasudha answered on Feb 24 2021
Part 1
Exercise -1 A company has a net profit margin of 4% , total assets = 200, turnover =140 and shareholder's
equity =120 , What is the Return on Equity ( ROE) of the company ? What is its net profit ?
Turnover = 140
Net Income = 140*4%
Net Income / Net Profit 5.6
Return on Equity = Net Income / Average Shareholder's Equity
= 5.6
= 0.0466666667
Exercise -2 Beta Co. has to repay the principal of a loan at the end of the current year requiring it to maintain
a current ratio of 1.5 or better. As Beta approches year-end, current assets are $20 million ( $1 miliion in cash ,
$9 million in accounts receivable, and $10 million in inventory) and current liabilities are $13.5 million.
Calculate the Current Ratio and the Quick Ratio , Comment the figures obtained.
a Current Ratio = Current Assets / Current Liabilities
Current Ratio = 20 mln / 13.5 mln
= 1.4814814815 times
current ratio is 1.48 times as compated to 1.5 times required by the company, which is still a good ratio. In order to improve , company need to increase the current assets componets, keeping the current liabilites at the same level.
b Quick Ratio = Quick Assets / Current Liabilites.
Quick Ratio = 10 mln / 13.5
= 0.7407407407 times
Quick ratio is more conservative calculation of liquidity position of the company.
Quick ratio more than 1 is considered to be in good position, in this case it is less than 1, so it seems problematic.
Exercise -3 A financial analyst gathers the following informtion about two companies for the year ending 31st December, 2018.
Company C Company D
Dividend Yield 12% 10%
Return on Equity 12% 15%
Financial Leverage 1.6 2
a Which of the above ratios best describe the companie's profitability ?
Return ratios represent the compnay's ability to generate return to its shareholders.
so, return on equity is the profitability ratio among the three in the above table.
ROE = Net Income / Shareholder's Equity.
b Which information is missing to calculate the net profit margin ?
Net Profit Margin = Net Income / Revenue *100
If we get the shareholder's euity numbers we can calculate net income
if we get the revenue numbers we can calculate net profitmargin.
Exercise - 4 Costco Wholesale Corporation, doing business as Costco, is an American group which operates a chain of membership- only warehouse clubs.
As of 2018 , Costco was the second largest retailer in the world after Walmart, Costco has a frequently changing inventory and is known for carrying products.
for a given period, then discounting them or using them as seasonal products.
Over the past three years,Costco has gradually expanded its range of products and services.
In addition to selling boxed products that could be despensed by tearing the stretch wrap off a pallet, Costco now sells many other products that are
more difficult to handle, such as books,clothing , computer software,fine wine,furniture,home appliances, jewelary, perishable items
( such as dairy goods,meat….. ), solar panels and vacuum cleaners.
Aggregated working capital needs of Costco over the past five years ( at 31 Juy ) were decomposed as follows:
In € Billion
Vasudha Venkataraman: Vasudha Venkataraman:
Actually it is Euro as per the question, as question does not give exchange numbers , I have considered as $ 2015 2016 2017 2018 2019
Inventory of finished goods 29.4 28.8 30.5 45.6 57.8
Accounts Receivables 25.6 33.6 42.4 46.5 48.7
Accounts Payables 31.2 36.0 32.8 38.6 40.4
Following information from the income statement are also provided including :
In $ Billion 2015 2016 2017 2018 2019
Total Revenue - net sale (excl.VAT) 112.640 116.199 118.719 129.025 141.576
Total Purchases (excl. VAT...