Accounting Financial Analysis

ASSIGNMENT

JULYY 2015 SEMESTER

KOD KURSUS

NAMA KURSUS

PROGRAM

NAMA PELAJAR

NO. MATRIK

NAMA FASILITATOR

AKADEMIK

PUSAT PEMBELAJARAN

QUESTION 1

a. A brief description of the company’s history, the nature of products / services in

operation and the objectives.

WCT Group was first established with the integration of WCT Earthworks & Building

Contractors SdnBhd on 14 January 1981 and consequently changed its name to WCT Berhad

(“WCTB”). WCT isprincipally involved in engineering and construction, property

development and investment & management activities.Its scope of engineering and

construction expertise the know-how in covering F1 racing circuits, airports, dams and water

supply schemes, expressways and highways, civil works, interior fit-out works and buildings.

The company’s property development and investment & management portfolio includes

townships, luxury homes, high-rise residences, industrial properties, offices, integrated

commercial developments, concessions, hotels and shopping malls.

b. A fully worked out appendix on financial analysis of the financial statements that

highlights the profitability, liquidity and management efficiency and leverage

ratio.

Profitability Ratio

1. Gross Profit Margin

= Gross Profit / Net Sales x 100

Year Assessment 2013

= 280,003 / 1,654,951 x 100

= 16.92%


= 233,587 / 1,662,222 x 100

= 14.05%

2. Operating Margin

= Operating Profit / Net Sales x 100


= 302,673 / 1,654,951 x 100

= 18.29%


= 194,305 / 1,662,222 x 100

= 11.69%

3. Return On Assets (ROA)

= Net Income / Total Assets x 100


= 189,751 / 2,671,475 x 100

= 7.10%


= 120,971 / 2,748,740 x 100

= 4.40%

4. Return On Equity (ROE)

= Net Income / Owner’s Equity x 100


= 189,751 / 2,256,361 x 100

= 8.40%


= 120,971 / 2,287,142 x 100

= 5.29%

5. Return On Investments (ROI)

= Profit after Interests & Tax / Total Assets x 100


= 189,751 / 2,671,475 x 100

= 7.10%


= 120,971 / 2,748,740 x 100

= 4.40%

Liquidity Ratio

1. Acid-Test Ratio

= (Current Assets – Inventory) / Current Liabilities


= (2,671,475 - 75,575) / 1,231,249

= 2.11


= (2,748,740 - 90,710) / 1,640,323

= 1.62

2. Cash Ratio

= Cash & Cash Equivalents / Current Liabilities


= 973,403 / 1,231,249

= 0.79


= 950,841 / 1,640,323

= 0.57

3. Current Ratio

= Current Assets / Current Liabilities


= 2,671,475 / 1,231,249

= 2.17


= 2,748,740 / 1,640,323

= 1.68

Management Efficiency Ratio

1. Debt Ratio

= Total Liabilities / Total Assets


= 3,278,261 / 5,534,622

= 0.59


= 3,939,872 / 6,227,014

= 0.63

2. Debt to Equity Ratio

= Total Liabilities / Owner’s Equity


= 3,278,261 /2,256,361

= 1.45


= 3,939,872 /2,287,142

= 1.72

3. Accounts receivable turnover ratio

= Total Sales / Accounts Receivable


= 1,654,951 / 990,808

= 1.67


= 1,662,222 / 954,143

= 1.74

4. Accounts payable turnover ratio

= Cost of Sales / Accounts Payable


= 1,374,948 / 842,727

= 1.63


= 1,428,635 / 1,043,011

= 1.36

c. Comment on the financial position of the business concern.

Ratios are an attempt to make an analysis of the past statement, so they are historical

documents. Now-a-days keeping in view the complexities of the business, it is important to

have an idea of the probable happening in future.Accounting ratio are tools of quantitative

analysis only. But sometimes qualification factors may surmount the quantitative aspects.

The calculation derived from the ratio analysis under such circumstances may get distorted.

For the financial year ended 31 December 2013, the Group registered a net profit of RM197.5

million as compared to RM358.9 million recorded in the previous year. The higher net profit

in 2012 was due to higher fair value gain in investment properties. The Group’s revenue of

RM1,655.0million represented an increase of 6.1% compared to theprevious year’s revenue

of RM1,560.4 million. The Civil Engineering and Construction Division contributed

approximately RM1,168.4 million or 71% of the Group’s total revenue. The Civil

Engineering and Construction Division remains the backbone of the Group’s revenue stream.

The Property Development and Investment & Management division contributed about 57%

of the Group’s operating profit. Moving forward, the Property Investment &Management

division will be an essential component in the Group’s operations in ensuring the long term

sustainability of yield improvement for the respective assets, and providing a steady recurrent

income flow.

For the financial year ended 31 December 2014, the Group recorded a net profit after taxation

of RM122.9 million, as compared to RM197.5 million recorded in 2013. The decline in profit

was mostly attributed to lower fair value gain of RM9.4 million (2013: RM43.7million) on

investment properties and the decrease in profit margins.

Nonetheless, the Group’s revenue of RM1,662.2 million represented a slight increase

compared to the previous year’s revenue of RM1,655.0million.The Engineering and

Construction Division contributed approximately RM1,210.6 million or 73% of the Group’s

total revenue. The Engineering and Construction Division remains the backbone of the

Group’s revenue stream.

The Property Development and Investment &Management division contributed

approximately RM108.5 million or 56% of the Group’s operating profit. Moving forward, the

Property Investment &Management division will be an essential component in the Group’s

operations in ensuring the long term sustainability of yield improvement for the respective

assets, and providing a steady recurrent income flow.

Moreover, the company had shown a good financial stability throughout the year as they had

manage the company well in terms of business models and fundamental of making profits for

its subsidiaries. Therefore, we can look at the financial position, it had shown that the figures

are quite convincing and the demand from the outer markets had make the company to be

more competitive and to be more financially wise for the long run.

d. What further information would you require to fully understand the company’s

strength and weaknesses?

In order to gather further information of a company, we have to be financial intelligence.

Financial intelligence has emerged as a best practice and core competency in many

organizations leading to improved financial results, increased employee morale, and reduced

employee turnover. Many organizations include financial intelligence programs in their

leadership development curriculum. Financial intelligence is not an distinctive skill rather it

is a learned set of skills that can be developed at all levels.

Firstly we have to understanding the foundation. Financial intelligence requires an

understanding of the basics of financial measurement including the income statement, the

balance sheet, and the cash flow statement. It also requires knowing the difference between

cash and profit and why a balance sheet balances.

Secondly, we have to understanding the art. Finance and accounting are an art as well as a

science. The two disciplines must try to quantify what can't always be quantified, and so must

rely on rules, estimates, and assumptions. Financial intelligence ensures people are able to

identify where the artful aspects of finance have been applied to the numbers and know how

applying them differently might lead to different conclusions.

Thirdly, we have to understanding analysis. Financial intelligence includes the ability to

analyse the numbers in greater depth. This includes being able to calculate profitability,

leverage, liquidity and efficiency ratios and understanding the meaning of the results.

Conducting ROI analysis and interpreting the results are also part of financial intelligence.

Lastly, we have to understanding the big picture. Financial intelligence also means being able

to understand a business's financial results in context that is, within the framework of the big

picture. Factors such as the economy, the competitive environment, regulations and changing

customer needs and expectations as well as new technologies all affect how the numbers are

interpreted.

QUESTION 2

a. Solve the equation [1-1 & 1-2] algebraically to find Q(BE) or the breakeven

output.

P = Selling Price

Q = Quantity of Output or Sales

TR = Total Revenue

TC = Total Cost

FC = Fixed Cost

V = Variable Cost per Unit

If TR = (P) (Q) – equation 1-1

And TC = FC + V (Q) – equation 1-2

Answer:

Breakeven Output is, TR = TC

P Q = FC + V Q

P = (FC / Q) + V

Therefore, the breakeven output equation would be, P = (FC / Q) + V

b. For the equation you solved in (a), what is the denominator of the breakeven

equation called?

The quantity of output or sales (Q) is the denominator in the equation above.

c. If selling price per unit (P) = $10

Variable cost per unit (V) = $5

Fixed Costs (F) = $200

i. What is the contribution margin?

Contribution Margin = Fixed Costs / (Selling Price – Variable Cost per unit)

= $200 / ($10 - $5)

= $200 / $5

= $40

ii. What is the breakeven quantity / output?

Breakeven quantity = Fixed Cost / Contribution Margin

= $200 / $40

= 5 units

d. Suppose that the firm wishes to earn a specific profits or a target profit of $100,

what is the new target output, Q (T)?

New Target Output = (Fixed cost + target profit)/ Contribution Margin

= ($200 + $100) / $40

= $300 / $40

= 7.5 or 8 units of output

REFERENCES

Brigham, E., & Houston, J. (2009). Fundamentals of Financial Management. Mason:

Cengage Learning. Drake, P. (2010). Financial ratio analysis.

Frase, L., & Ormiston, A. (2004). Understanding Financial Statements. New Jersey: Pearson

Prentice Hall.

Hey-Cunningham, D. (1993). Financial Statements Demystified. New South Wales: Allen &

Unwin.

Johnstone, D. B. (2009). Worldwide Trends in Financing Higher Education. In J. Knight,

Financing Access and Equity in Higher Education. Rotterdam: Sense Publishers.

Documents

Accounting Financial Analysis