The following table provides an historical summary of key financial ratios for Hallenstein Glassons Limited (HGL)....

 

  

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The following table provides an historical summary of key financial ratios for Hallenstein Glassons Limited (HGL). HGL is a company listed on New Zealand Stock Exchange. It is a retailer of men's and women's clothing in New Zealand and Australia. Ratio 2017 Return on assets % 20.24% Gross profit margin % 58.85% Profit margin % 7.23% 2.80 Asset Turnover (times) Days inventory (days) 76.47 days (b) 2018 29.72% 61.33% 9.84% 3.02 71.12 days 2019 37.73% 60.01% 13.72% 2.75 76.21 days Required: Please answer the following questions after reviewing the table of key financial ratios above: (a) With reference to the above ratios, analyse the trend in HGL's profitability providing possible reasons for any change. (8 marks - maximum of 200 words) Explain what a Days inventory ratio is measuring and how it impacts on HGL's profitability. (a) (b) (c) Identify two reasons why the cost of long-term debt is cheaper than the cost of equity for a listed company. (4 marks- maximum of 80 words) Explain why you cannot simply just compare the non-discounted value of the cash returns when deciding between the two investment opportunities. (4 marks- maximum of 80 words) Explain why cash flows rather than profits from the Income Statement are used in the net present value method of investment appraisal. (4 marks- maximum of 100 words) The following table provides an historical summary of key financial ratios for Hallenstein Glassons Limited (HGL). HGL is a company listed on New Zealand Stock Exchange. It is a retailer of men's and women's clothing in New Zealand and Australia. Ratio 2017 Return on assets % 20.24% Gross profit margin % 58.85% Profit margin % 7.23% 2.80 Asset Turnover (times) Days inventory (days) 76.47 days (b) 2018 29.72% 61.33% 9.84% 3.02 71.12 days 2019 37.73% 60.01% 13.72% 2.75 76.21 days Required: Please answer the following questions after reviewing the table of key financial ratios above: (a) With reference to the above ratios, analyse the trend in HGL's profitability providing possible reasons for any change. (8 marks - maximum of 200 words) Explain what a Days inventory ratio is measuring and how it impacts on HGL's profitability. (a) (b) (c) Identify two reasons why the cost of long-term debt is cheaper than the cost of equity for a listed company. (4 marks- maximum of 80 words) Explain why you cannot simply just compare the non-discounted value of the cash returns when deciding between the two investment opportunities. (4 marks- maximum of 80 words) Explain why cash flows rather than profits from the Income Statement are used in the net present value method of investment appraisal. (4 marks- maximum of 100 words)

Answer rating: 100% (QA)

a HGLs profitability has been trending upwards over the period shown as indicated by the increasing return on assets and profit margin ratios Return o... View the full answer