Seri Bayu is a listed entity that operates in a highly competitive market. A new entrant...
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Seri Bayu is a listed entity that operates in a highly competitive market. A new entrant to this market (which entered on 1 June 2019) has created pressure within the market by developing a marginally lower quality product and selling it at a lower price. The result has been a shift in market share to this new entrant. You have been asked to review the financial performance and position of Seri Bayu for a large institutional investor who has identified Seri Bayu as a potential investment. Seri Bayu's share price fell significantly following poor interim results. The share price was $5.29 on 31 March 2019 and $3.94 on 31 March 2020. Seri Bayu announced any final dividend was likely to be in the form of a scrip dividend. Extracts from Seri Bayu's financial statements are provided below: Consolidated statement of financial position at 31 March ASSETS Non-current assets Property, plant and equipment Goodwill (Note 3) Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital ($1 shares) Share premium Retained earnings Non-controlling interest Total Equity Non-current liabilities Long-term borrowings (Note 1) Current liabilities Trade and other payables Short-term borrowings (Note 2) Total Liabilities Total equity and liabilities 2020 Sm 270 15 285 63 103 166 451 40 60 142 242 34 276 65 84 26 110 175 451 2019 Sm 205 25 230 81 110 19 210 440 40 60 130 230 30 260 60 120 120 180 440 Consolidated Statement of Comprehensive Income for the year ended 31 March Revenue Cost of sales Gross profit Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year 2020 Sm 680 (498) 182 (142) (8) 32 (14) 18 2019 Sm 640 (453) 187 (144) (5) 38 (15) 23 Notes: 1. The long-term borrowings are repayable in 2025. 2. Seri Bayu has a facility in place permitting short-term borrowings up to a maximum of $50 million. 3. Goodwill was impaired this year and this has been charged to operating expenses. No further investments were acquired in the year. Required: a. Calculate the P/E ratio for Seri Bayu at 31 March 2020 and 31 March 2019 (6 marks) b. Explain what conclusions can be drawn from Seri Bayu's P/E ratios and the movement in the share price in the year. (6 marks) c. "A high earning per share may not always maximize the share price". Explain your answer. (7 marks) d. Analyse the financial performance and financial position of Seri Bayu and discuss whether or not you would recommend that Seri Bayu be considered further for investment. (10 marks are available for the calculation of relevant ratios). Seri Bayu is a listed entity that operates in a highly competitive market. A new entrant to this market (which entered on 1 June 2019) has created pressure within the market by developing a marginally lower quality product and selling it at a lower price. The result has been a shift in market share to this new entrant. You have been asked to review the financial performance and position of Seri Bayu for a large institutional investor who has identified Seri Bayu as a potential investment. Seri Bayu's share price fell significantly following poor interim results. The share price was $5.29 on 31 March 2019 and $3.94 on 31 March 2020. Seri Bayu announced any final dividend was likely to be in the form of a scrip dividend. Extracts from Seri Bayu's financial statements are provided below: Consolidated statement of financial position at 31 March ASSETS Non-current assets Property, plant and equipment Goodwill (Note 3) Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital ($1 shares) Share premium Retained earnings Non-controlling interest Total Equity Non-current liabilities Long-term borrowings (Note 1) Current liabilities Trade and other payables Short-term borrowings (Note 2) Total Liabilities Total equity and liabilities 2020 Sm 270 15 285 63 103 166 451 40 60 142 242 34 276 65 84 26 110 175 451 2019 Sm 205 25 230 81 110 19 210 440 40 60 130 230 30 260 60 120 120 180 440 Consolidated Statement of Comprehensive Income for the year ended 31 March Revenue Cost of sales Gross profit Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year 2020 Sm 680 (498) 182 (142) (8) 32 (14) 18 2019 Sm 640 (453) 187 (144) (5) 38 (15) 23 Notes: 1. The long-term borrowings are repayable in 2025. 2. Seri Bayu has a facility in place permitting short-term borrowings up to a maximum of $50 million. 3. Goodwill was impaired this year and this has been charged to operating expenses. No further investments were acquired in the year. Required: a. Calculate the P/E ratio for Seri Bayu at 31 March 2020 and 31 March 2019 (6 marks) b. Explain what conclusions can be drawn from Seri Bayu's P/E ratios and the movement in the share price in the year. (6 marks) c. "A high earning per share may not always maximize the share price". Explain your answer. (7 marks) d. Analyse the financial performance and financial position of Seri Bayu and discuss whether or not you would recommend that Seri Bayu be considered further for investment. (10 marks are available for the calculation of relevant ratios).
Expert Answer:
Answer rating: 100% (QA)
PE ratio Share price EPS 31 March 2020 394 0182 005 224 31 March 2019 529 0187 0023 291 bThe PE rati... View the full answer
Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
Posted Date:
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