Question 1 (10 Marks) It is global knowledge that liquidity and liquidity ratios and other major...

 

Transcribed Image Text:

Question 1 (10 Marks) It is global knowledge that liquidity and liquidity ratios and other major ratios are used by analysts to determine a company's solvency or insolvency and level of profitability, among other, and the determination of a company's financial distress or strength. The purpose of this question is provide students the opportunity to read the annual report of DAMAC Company (one of the companies listed in the Dubai Financial Market) and to analyze its financial statements based on the following key information provided: Group 1: ID 648 to 1607 Will analyze the Company's annual report for years 2020 and 2019 Group 2: ID 1630 to 1923 Will analyze the Company's annual report for years 2018 and 2017 Group 3: ID 1940 to 2508 Will analyze the Company's annual report for years 2016 and 2015 1. Executive summary The executive summary should contain the conclusions of segment 1., 2., 3., and overall conclusion. 2. CEO Message The CEO message is presented in the first few pages of the annual report. You are required to provide a brief description of the "CEO Message" to include; 2.1 Summary of achievements in current year (for example sales increase) 2.2 Forecast for the future of the company. 3. Auditor's report (Note: Every company listed in a stock exchange, such as the Dubai Financial Market, must have their financial statements Balance sheet, Income statement, Statement of changes in Equity and the Statement of Cash Flows - audited by an independent auditor who upon completion of his audit expresses an opinion as to the fair presentation of these financial statements. If the financial statements are OK the auditor in his last paragraph of the report will have his opinion that for a clean opinion will state that the financial statements are fairly presented. If the auditor has found exceptions during the audit that were not resolved by management then the auditor will issue a Qualified Opinion disclosing his exceptions found. You are looking for a clean opinion). In this section include the auditor's opinion found at the end of the auditor's report and any exceptions qualifications regarding the audit that the auditor may have disclosed in his report. 4. Company analysis and financial statement ratio analysis. In this section perform an analysis of the company as follows: 4.1 Perform an analysis of the company using the following ratios: 1. Current ratio = current assets/ current liabilities 2. inventory / current Sales net / Average Days sales outstanding = 365 / Accounts receivable Inventory turnover Cost of goods sold / Average inventory Days inventory on hand = 365 / Inventory turnover Debt to equity ratio= Total liabilities / total liabilities 4. 3. Accounts receivable turnover accounts receivable Quick ratio current assets turnover 5. 6. 7. equity 8. 9. Debt to total assets = Total Liabilities / total assets Long term bank loans to total assets Long term bank loans / total assets 10. Profit Margin on sales - Net income / sales 11. Cost of goods sold to sales - Cost of goods sold / sales 12. Gross profit to sales-Gross profit/ sales Provide a detailed evaluation of the ratio analysis which should include: a) if each ratio is favorable or unfavorable and b) the overall performance of liquidity, solvency and profitability of the company c) your overall conclusion if you would invest in the company based on the ratio analysis you performed. 4.2 Using the model below calculate the following: Model Z score = Z1 = 1.2x1 + 1.4x2+3.3x3 + 6x4 +1.0x5 X1 = (Current assets - current liabilities) / total assets X2 = Retained Earnings / total assets X3 = EBIT / Total Assets = Means Operating Income / Total Assets X4 = Market value of common and preferred shares / value of total liabilities X5 = Sales/total assets Total Appendix A sample format for your ratio analysis is shown below. The accounts receivable and sales balances for the years under review were as follows: 2020 2019 2018 2017 Accounts receivable 19.244 20.912 30.587 39.247 25.449 35.11742.77867.101 Sales net The Accounts Receivable Turnover Ratio is calculated as: Accounts Receivable Turnover - Sales-Net Average Accounts Receivable 2020 2019 2018 Accounts Receivable Turnover Ratio 1.75 times 1.66 times 1.92 times 4.3 (Optional) Extend the analysis of the company using the following ratios: Rate of return measures = - Cash Flow / (Net Worth) Assets - liabilities - Net Income / (Net Worth) Assets - Liabilities Liquid assets composition= - Quick assets/total assets Liquidity position= - Current assets/ current liabilities - Quick assets/ current liabilities 4*. Financial leverage = - Total Debt to total assets = Total liabilities / total assets Activity turnover - Cost of goods sold / Inventory - Accounts receivable /sales - Total assets/ sales Fixed payment coverage = - Cash flow from operations / total debt (liabilities) Question 1 (10 Marks) It is global knowledge that liquidity and liquidity ratios and other major ratios are used by analysts to determine a company's solvency or insolvency and level of profitability, among other, and the determination of a company's financial distress or strength. The purpose of this question is provide students the opportunity to read the annual report of DAMAC Company (one of the companies listed in the Dubai Financial Market) and to analyze its financial statements based on the following key information provided: Group 1: ID 648 to 1607 Will analyze the Company's annual report for years 2020 and 2019 Group 2: ID 1630 to 1923 Will analyze the Company's annual report for years 2018 and 2017 Group 3: ID 1940 to 2508 Will analyze the Company's annual report for years 2016 and 2015 1. Executive summary The executive summary should contain the conclusions of segment 1., 2., 3., and overall conclusion. 2. CEO Message The CEO message is presented in the first few pages of the annual report. You are required to provide a brief description of the "CEO Message" to include; 2.1 Summary of achievements in current year (for example sales increase) 2.2 Forecast for the future of the company. 3. Auditor's report (Note: Every company listed in a stock exchange, such as the Dubai Financial Market, must have their financial statements Balance sheet, Income statement, Statement of changes in Equity and the Statement of Cash Flows - audited by an independent auditor who upon completion of his audit expresses an opinion as to the fair presentation of these financial statements. If the financial statements are OK the auditor in his last paragraph of the report will have his opinion that for a clean opinion will state that the financial statements are fairly presented. If the auditor has found exceptions during the audit that were not resolved by management then the auditor will issue a Qualified Opinion disclosing his exceptions found. You are looking for a clean opinion). In this section include the auditor's opinion found at the end of the auditor's report and any exceptions qualifications regarding the audit that the auditor may have disclosed in his report. 4. Company analysis and financial statement ratio analysis. In this section perform an analysis of the company as follows: 4.1 Perform an analysis of the company using the following ratios: 1. Current ratio = current assets/ current liabilities 2. inventory / current Sales net / Average Days sales outstanding = 365 / Accounts receivable Inventory turnover Cost of goods sold / Average inventory Days inventory on hand = 365 / Inventory turnover Debt to equity ratio= Total liabilities / total liabilities 4. 3. Accounts receivable turnover accounts receivable Quick ratio current assets turnover 5. 6. 7. equity 8. 9. Debt to total assets = Total Liabilities / total assets Long term bank loans to total assets Long term bank loans / total assets 10. Profit Margin on sales - Net income / sales 11. Cost of goods sold to sales - Cost of goods sold / sales 12. Gross profit to sales-Gross profit/ sales Provide a detailed evaluation of the ratio analysis which should include: a) if each ratio is favorable or unfavorable and b) the overall performance of liquidity, solvency and profitability of the company c) your overall conclusion if you would invest in the company based on the ratio analysis you performed. 4.2 Using the model below calculate the following: Model Z score = Z1 = 1.2x1 + 1.4x2+3.3x3 + 6x4 +1.0x5 X1 = (Current assets - current liabilities) / total assets X2 = Retained Earnings / total assets X3 = EBIT / Total Assets = Means Operating Income / Total Assets X4 = Market value of common and preferred shares / value of total liabilities X5 = Sales/total assets Total Appendix A sample format for your ratio analysis is shown below. The accounts receivable and sales balances for the years under review were as follows: 2020 2019 2018 2017 Accounts receivable 19.244 20.912 30.587 39.247 25.449 35.11742.77867.101 Sales net The Accounts Receivable Turnover Ratio is calculated as: Accounts Receivable Turnover - Sales-Net Average Accounts Receivable 2020 2019 2018 Accounts Receivable Turnover Ratio 1.75 times 1.66 times 1.92 times 4.3 (Optional) Extend the analysis of the company using the following ratios: Rate of return measures = - Cash Flow / (Net Worth) Assets - liabilities - Net Income / (Net Worth) Assets - Liabilities Liquid assets composition= - Quick assets/total assets Liquidity position= - Current assets/ current liabilities - Quick assets/ current liabilities 4*. Financial leverage = - Total Debt to total assets = Total liabilities / total assets Activity turnover - Cost of goods sold / Inventory - Accounts receivable /sales - Total assets/ sales Fixed payment coverage = - Cash flow from operations / total debt (liabilities)

Answer rating: 100% (QA)

The ratios for the year under review is as under Sr No Particulars Ratio Working Favourable 1 Current Ratio Current Assets Current Liablities 412 208991765075876 Yes 2 Quick Ratio Current Assets Inven... View the full answer