Table of Contents

1. To explain the importance of financial management. 3-4

Identify the roles of financial management in assisting Small and

Medium-Sized Enterprises (SMEs)

2. What are the main components of a Statement of Cash Flows 5-8

what items may be found in each of the components concerned?

3. Compute at least 13 key ratios to enable you to assess the financial 9-17

performance of Healthy Snack Corporation.

4(i) Comment on the liquidity profitability, overall financial health of 17-18

Healthy Snack? Why?

(ii) Is there a need for financial planning as requested by Vicky? 18-19

5. What are some actions that Mark and Vicky can take in order to alleviate 19-21

some of the needs for external financing? Analyze the feasibility and

implications of each suggested action.

6. Since this is the first time the Corporation is preparing a financial forecast, 21-24

how do you think the firm should proceed? What are the assumptions

necessary for preparing this forecast? Explain.

7. Given that Mark prefers not to deviate from the firm's 2004 debt to equity 24-26

ratio, prepare the Corporation's pro-forma income statement and balance

sheet under the scenario of 40% growth in sales for 2005. You must justify

how the figures are derived.

1
8. They constructed a financial and industry analysis for Motorola 27-29

Corporation. The objective is to show students and readers exactly how

to compute ratios for an actual company. The paper also demonstrated the

difficulties in applying the principles of financial ratio analysis when the

data are not homogeneous as the case in many textbook examples.

9. References 30-31

2
 PART A

1. To explain the importance of financial management. You are required to

list down the important points noted from the podcast, and identify the
roles of financial management in assisting Small and Medium-Sized
Enterprises (SMEs).

Trivial and medium-sized companies’ (SMEs) is very significant towards

the Indian economy. With millions of businesses from various industries it
employs a vast population of several people. The trivial business segment
comprises leading women's guide businesses in addition several rural
businesses. During overall the MSME segment contributes towards about
45% of Indian industrial production in addition exports. while a big
portion of trivial in addition medium-sized initiatives are not listed the role
of trivial in addition medium-sized companies during India’s GDP is
growing rapidly each year at a rate higher than the overall GDP growth
rate. Lack of market connectivity in addition lack of substructure can be
seen as a major factor in the limited development of this segment. The
absence of adequate in addition scheduled admittance towards financial
capitals was alternative major contest. Financing requirements aimed at
trivial in addition medium-sized businesses depend on factors such as
operational size industry customer sector and phase of progress.

Flow of Finance to the MSME Sector; studies have displayed which the
entire monetary demand is since self-funded otherwise informal bases.
Authorized bases deliver facilities towards a trivial ration of MSME's
entire obligation bankrolling. During the authorized segment of finance
banks explanation aimed at a larger percentage of the obligation hoard
during this segment that contains of statistics for example profitable
banks. Trivial banks for example non-bank businesses dealing along
finance in addition numerous administrations monetary institutions for
example the city cooperative bank (UCBs) the regional rural bank (RRBs)

3
in addition nationwide manufacturing growth companies in addition
nationwide finance; the rest of the (MSMEs) contains of official debt
flows.

Providing Environment for Development of Finance in the MSME

Sector; the main pillars of the monetary environment are: legal in addition
regulatory frameworks government backing monetary substructure
support. MSMEs operate in a highly competitive environment so you need
an environment that can sustain growth. Appropriate monetary backing
motivations towards drive innovation in addition the monetary midpoint's
ongoing policy framework can significantly increase the influx of
monetary facilities into the MSMEs sector.

Increased Access to MSME Finance; numerous possible interventions

are wanted towards upsurge admittance towards SME financing during
India through infrastructure risk administration in addition liquidity
administration. Some of the possible interferences include:

Enabling substructure; Promote institutes towards improve finance in

addition provide advisory backing towards rural in addition semi-urban
(SMEs). The formulation of new enterprises linked towards SME-specific
funds via allowing current administration equity funds towards enable
investment. Liquidity administration; improving debt admittance
towards non-bank monetary companies. Growth of an online stage aimed
at monitoring MSME. Providing credit assurances towards backing
MSME financing. Administration; growth of a better knowledge of the
financing conditions of this sector. Expanding the latitude of SME credit
info on deal statistics. Strengthening existing links with other monetary
substructure. Admittance towards numerous non-bank monetary
companies.

4
2. What are the main components of a Statement of Cash Flows and what
items may be found in each of the components concerned?

Monetary declarations are a significant source of monetary info which

may be utilized towards brand sound corporate conclusions. This means
which all constituents of the monetary declarations are significant. The
constituents of monetary declarations may be described for example
constituents utilized towards create monetary declarations which represent
words in addition statistics numerous capitals assertions for those capitals
in addition all dealings which generate alterations. Here are capitals in
addition claims. The next is a tilt of the constituents of the most significant
monetary declarations such as balance sheets profit and loss p&l
statements in addition cash flow statements in addition their significance.

Components of Important Financial Statements

Balance Sheet; the balance sheet is a declaration about the organization's

possessions accountabilities in addition wealth on some fact during time.
This declaration delivers a notion of pardon the corporation possesses in
addition owes in addition how much it holds. Significant constituents of
this declaration include:

Assets; possessions are often owned otherwise organized via the belief
which they may be palpable otherwise impalpable in addition may provide
future aids in addition be palpable otherwise impalpable. The former
currently comprises possessions in addition fixed possessions but the latter
refers to privileges in addition additional non-physical capitals which
provide price to the corporate.

Liabilities; liabilities are lawful accountabilities otherwise duties of the

corporation which may arise during the course of the operation of the
corporate. Liabilities comprise unpaid cash pays otherwise salaries interest

5
customer deposits in addition additional duties towards third parties.
Obligation can be two types of present otherwise long-term.

Equity or owner’s equity; the residual possessions of the residual object

afterwards the obligation deduction. During theory this is the wealth
which can be distributed towards stockholders. So since the company's
insolvency point of view wealth is considered a residual claim for
corporate possessions obtainable towards stockholders afterwards the debt
has been paid. E.g. if corporation x has $3 000 000 in assets in addition
$800 000 in debt the capital will be $2 200 000 $3 000 000 $800 000
equity characteristically consists of coffers donated via stockholders
reserves in addition return surpluses. So the only method towards increase
the owner's capital is to get more money from the investor or increase the
profit.

Profit and Loss Statement; this declaration is a summary of the

monetary presentation of the corporate over time. This is typically
equipped each quarter otherwise year later. The constituents of this
declaration are;

Revenue; the quantity of money a corporation accepts since the auction of

properties otherwise facilities in a period of time is called the company's
income. This comprises reductions in addition deductions aimed at
refunded goods. Income too comprises the quantity received for example
an outcome of utilizing the wealth otherwise possessions of the corporate
for example fragment of the business's operations. Income is the business's
top streak otherwise total earnings.

Cost; the situation is the company's payment towards generate leakage of

cash otherwise accountabilities otherwise an amalgamation of both by
performing activities which make up part of the manufacture of properties
rendering facilities otherwise operating a corporate. Normal corporate

6
payments comprise salaries otherwise pays utilities for example rental
devaluation of wealth possessions in addition interest at advances.

Profit; the company's return is to upsurge capital through exterior

otherwise ancillary dealings via companies additional than the return
otherwise investment of the proprietor stockholders the situation refers
towards the monetary benefits external the ordinary operation of the
corporate. In general returns are rare in addition non-repeating dealings for
example acreage auction gains changes during stock bazaar prices
otherwise futures.

Loss; damage of the corporation is a reduction of equity through exterior

otherwise incidental dealings carried out via the corporation prices
otherwise distribution towards the owner. This may be asset auctions asset
records otherwise litigation losses.

Cash Flow statement; this declaration is a summary of the company's

real otherwise expected money influxes in addition leakages during the
bookkeeping period. This may be equipped on the conclusion of the month
quarter otherwise year. The money tide declaration reflects the liquidity
location of the corporate. This is utilized for example the basis aimed at
budget in addition corporate scheduling. The components of this
declaration are:

Cash flow from operating activities; the operational doings of the

corporate refer towards the manufacture sale in addition distribution of the
finished product in addition the recall of the client's expense. Money
leakages here may comprise the cost of purchasing raw supplies
advertising in addition shipping produces. Expenses towards contractor’s
staffs in addition interest expenses may not be included. Depreciation in
addition amortization is too included during the money tide declaration.

7
Money inflows consist of the sale of properties in addition facilities in
addition the receipt of the interest received.

Cash flows from investment activities; this is the money tide related
along the investment in addition comprises asset acquisitions returns
otherwise losses in addition other associated items through savings during
monetary markets otherwise subsidiaries.

Cash flows from financial activities; this will consider actions which
assistance the corporation raises capital in addition repays it to investors.
Cash flows may comprise money dividends totaling otherwise altering
advances otherwise issuing shares. Money tides since monetary doings
demonstrate the monetary health of the corporation. Monetary doings
which generate positive money tide include money since issued shares in
addition bonds. Financing doings that generate negative money tides
comprise money to repurchase shares repay debts otherwise pay interest
otherwise pay shares to shareholders.

Everything items during monetary declarations are significant in addition

provide insight into the company's corporate in addition performance.
These components are useful towards everything stakeholders including
administration worker’s contractors in addition shareholders in addition
are useful aimed at developing sound corporate plans in addition following
a financially viable plan.

Kumaran, S (2015)

8
 PART B

3. Compute at least 13 key ratios to enable you to assess the financial

performance of Healthy Snack Corporation. Round all ratios to the nearest
1 decimal based on 360 working days

Current Assets
(i) Current Ratio (2002) =
Current Liabilities

533,000
=
424,000

= 12.57

Current Assets
Current Ratio (2003) =
Current Liabilities

662,376
=
476,352

=1.39

Current Assets
Current Ratio (2004) =
Current Liabilities

821,916
=
453,952

= 1.81

Average Inventory
(ii) Days Sales in Inventory (2002) =
Cost of Goods slold /360 days

335,000
=
2,400,000/360

335,000
=
6666.66

= 50.25 days
 Days Sales in Inventory (2003) =
Average Inventory
Cost of Goods slold /360 days

390,000
=
3,045,600/360
9
390,000
=
8460

= 46.1days

Days Sales in Inventory (2004) =

Average Inventory
Cost of Goods slold /360 days

511,500
=
3,877,500/360

511,500
=
10770.83

= 47.5days

Average Accounts Payable

(iii) Accounts Payable Payment =
Cost of Goods slold /360 days
Period (2002)
128,000
=
2,400,000/360

128,000
=
6666.66

= 19.20 days

Average Accounts Payable

Accounts Payable Payment =
Cost of Goods slold /360 days
Period (2003)
 151,352
=
3,045,600/360

151,352
=
8460

= 17.9days

Average Accounts Payable

Accounts Payable Payment =
Cost of Goods slold /360 days
Period (2004) 10

135,000
=
3,877,500/360

135,000
=
10770.83

= 12.53days

Gorss Profit
(iv) Gross Profit Margin (2002) =
Sales

600,000
=
3,000,000

= 20%

Gorss Profit
Gross Profit Margin (2003) =
Sales

714,400
=
3,760,000

= 19%
 Gorss Profit
Gross Profit Margin (2004) =
Sales

822,500
=
4,700,000

= 17.5%

Net Income
(v) Net Income Percentage (2002) =
Net Sales

11 122,400
=
3,000,000

= 4.1%

Net Income
Net Income Percentage (2003) =
Net Sales

170,040
=
3,760,000

= 4.52%

Net Income
Net Income Percentage (2004) =
Net Sales

210,900
=
4,700,000

= 4.5%
(vi) Cash Conversion Cycle = (Days Sale in Inventory) +
(2002) (Receivable Collection Period)-
(Accounts Payable Payment Period)

Average Inventory
= +
Cost of Goods Sold /360 days

Average Accounts Receivable

-
Net Credit Sales/ 360 days

Average Accounts Payable

Cost of Goods Sold /360 days

335,000 150,000
= + -
2,400,000/360 3,000,000/360

128,000
2,400,000/360
12
= 50.25 + 18 – 19.20

= 49.1 days

Cash Conversion Cycle = (Days Sale in Inventory) +

(2003) (Receivable Collection Period)-
(Accounts Payable Payment Period)

Average Inventory
= +
Cost of Goods Sold /360 days

Average Accounts Receivable

-
Net Credit Sales/ 360 days

Average Accounts Payable

Cost of Goods Sold /360 days
 390,000 175,000
= + -
3,045,600/360 3,760,000/360

151,352
3,045,600/360

= 46.1+16.75 – 17.9

= 45 days

Cash Conversion Cycle = (Days Sale in Inventory) +

(2004) (Receivable Collection Period)-
(Accounts Payable Payment Period)

Average Inventory
= +
Cost of Goods Sold /360 days

Average Accounts Receivable

-
Net Credit Sales/ 360 days

Average Accounts Payable

Cost of Goods Sold /360 days
13

511,500 250,416
= + -
3,877,500/360 4,700,000/360

135,000
3,877,500/360

= 47.48 +19.2 – 12.53

= 54.2 days

Total Liabilities
(vii) Debt Ratio (2002) =
Total Assets
 724,000
=
968,000

= 0.75

Total Liabilities
Debt Ratio (2003) =
Total Assets

726,352
=
1,072,376

= 0.68

Total Liabilities
Debt Ratio (2004) =
Total Assets

728,952
=
1,206,916

= 0.60

EBIT
(viii) Interest Coverage Ratio (2002) =
Interest Expense

204,000
=
66,000

= 3.1

EBIT
Interest Coverage Ratio (2003) =
Interest Expense

349,400
=
14 66,000

= 5.3

EBIT
Interest Coverage Ratio (2004) =
Interest Expense

432,500
=
66,000

= 6.6
 Costs of Goods Sold
(ix) Inventory Turnover Ratio (2002) =
Average Inventory

2,400,000
=
335,000

= 7.16 times

Costs of Goods Sold

Inventory Turnover Ratio (2003) =
Average Inventory

3,045,600
=
390,000

= 7.81times

Costs of Goods Sold

Inventory Turnover Ratio (2004) =
Average Inventory

3,877,500
=
511,500

= 7.6 times

Current Asset−Inventory
(x) Quick Ratio (2002) =
Current Liabilities

533,000−335,000
=
424,000

= 0.46

Current Asset−Inventory
Quick Ratio (2003) =
Current Liabilities

662,376−390,000
=
476,352

= 0.57

15 Current Asset−Inventory
Quick Ratio (2004) =
Current Liabilities

821,916−511,500
=
453,952
 = 0.68

Sales
(xi) Total Asset Turnover Ratio (2002) =
Total Assets

3,000,000
=
968,000

= 3.1

Sales
Total Assets Turnover Ratio (2003) =
Total Assets

3,760,000
=
1,072,376

= 3.5

Sales
Total Assets Turnover Ratio (2004) =
Total Assets

4,700,000
=
1,206,916

= 3.9

Net Income
(xii) Return on Assets (2002) =
Total Assets

122,400
=
968,000

= 12.64%

Net Income
Return on Assets (2003) =
Total Assets

170,040
=
1,072,376

= 15.85%

Net Income
Return on Assets (2004) =
Total Assets

16
 210,900
=
1,206,916

= 17.47%

Current Asset−Current Liabilities

(xiii) Working Capital Ratio (2002) =
Sales

533,000−424,000
=
3,000,000

= 3.63%

Working Capital Ratio (2003) =

Current Asset−Current Liabilities
Sales

662,376−476,352
=
3,760,000

= 4.94%

Current Asset−Current Liabilities

Working Capital Ratio (2004) =
Sales

821,916−453,952
=
4,700,000

= 7.82%

4(i) Comment on the liquidity profitability, overall financial health of Healthy

Snack? Why?

There are numerous monetary percentages that can be used towards assess
the health of your corporate but the proportion provided here is a major
proportion and easy to use.

Liquidity Ratios; Liquidity ratios assess your company’s aptitude towards

wage the situation beaks when they mature indicating which possessions
may effortlessly be rehabilitated into money. During most cases the

17
 situation is better towards have higher metrics during this category extra
present possessions than present accountabilities for example an indication
of solid corporate activities in addition the aptitude towards withstand
tight money tide periods. 

Current ratio; Current ratio = Total current assets

             Total current liabilities

As any of the most common events of monetary forte these metrics

quantity whether the entity contains enough present possessions towards
encounter the situation maturing liabilities along a security margin. A
normally tolerable presentation proportion is 2:1 but this depends on the
wildlife of the industry in addition the form of the situation short-term
possessions in addition accountabilities. E.g. your business may have
short-term possessions most of which consist of money in addition would
subsist along a comparatively inferior proportion.

Quick ratio; Quick ratio = Current assets – stock on hand     

              Current liabilities

Occasionally referred towards for example the acid test ratio this is any of
the finest liquidity events. Via eliminating shares that could turn into cash
for some time if the price is not cut off it focuses on real liquid assets.

(ii) Is there a need for financial planning as requested by Vicky?

Operative scheduling in addition monetary administration are the key

towards running a monetarily fruitful trivial corporate. Ratio investigation
is critical towards understanding monetary declarations recognizing trends
over time in addition gauging the total monetary fitness of your corporate.

Versatility and Usefulness; key figures are critical quantitative

investigation tools. One of its most significant functions is its ability
towards act as backward pointers during identifying optimistic in addition

18
 damaging monetary tendencies. Ratio investigation too gives you methods
towards liken your company’s monetary situation along additional
corporations during your business otherwise between your company in
addition corporate during other businesses.
Lohrey, J (2019)

5. What are some actions that Mark and Vicky can take in order to alleviate
some of the needs for external financing? Analyze the feasibility and
implications of each suggested action

Trivial corporate proprietors frequently necessity towards find bases of

exterior bankrolling towards finance otherwise expand their corporate.
Obligation bankrolling takes two dissimilar forms: obligation otherwise
equity. Obligation bankrolling comprises bank advances minutes in
addition credit postcard acquisitions although equity bankrolling happens
once the corporation sells shares of the situation possession towards
outside bases. Any of the chief bases of bankrolling aimed at trivial
companies is bank advances. The corporation acquiesces an advance
request towards a bank and investments in addition advance institute
otherwise another monetary institute.

Bond Issues; small and medium-sized companies may also issue bonds
via distributing bonds in place of applying for bank loans. For companies
participating during manufacturing growth the manufacturing growth
income bond (IDRB) program works along indigenous administration
agencies towards wage aimed at big-scale manufacturing assignments.
Corporations which have been (IDRB) approved may subject bonds in
addition provide them towards individual savers. The corporations have to
reimburse the principal in addition interest at the bonds towards the
indigenous growth agency that pays the proceeds towards the investor.
Angel Investors; businesses which prefer towards avoid the
accountabilities associated along obligation bankrolling may receive extra
wealth through equity bankrolling. Any basis of equity bankrolling is the
alleged seraph saver. These savers assistance improve the industry’s gear
19
wealth advertising plans in addition knowledge ignoble during talk aimed
at trivial rations of the aim company’s equity. During profit seraph savers
are watching aimed at corporations along tall possible in addition above-
average returns (ROI)

Venture Capital; alternative prevalent form of equity bankrolling is

gamble wealth. Gamble entrepreneurs discover businesses along
promising development possible in addition proposal towards invest
during exchange aimed at a considerable part of the property. Gamble
wealth companies contain admittance towards the cash in addition know-
how which numerous rising corporations want towards reach their full
possible. For example gamble wealth companies carry both wealth in
addition know-how towards the company they frequently give their
business specialists switch over their aim companies.
Hank, G (2019)

WHAT IS A FEASIBILITY STUDY? ; Viability learns are learns piloted

via administrations towards assess whether a particular action is
meaningful from a financial otherwise operational perspective. The query
which the viability learn fundamentally seeks towards response is ought to
we proceed along a concrete act strategy in addition towards determining
whether a strategy is feasible administrations may utilize viability learns
towards healthier understand in addition prepare aimed at dangers. The
situation is significant towards recall which viability learns are not the
identical for example corporate strategies. a corporate strategy delivers
scheduling capabilities in addition describes the tasks required towards
bring corporate notions towards life while viability learns deliver an
 investigation of precise features in addition whether they are feasible. The
situation is significant towards carry out both strategies beforehand you set
up your company but you should only perform a corporate strategy if a
viability learn has been deemed viable.

6. Since this is the first time the Corporation is preparing a financial forecast,
how do you think the firm should proceed? What are the assumptions
necessary for preparing this forecast? Explain.

In what way towards Utilize the Monetary Predicting Instrument; A

business may be deliberated a monetary achievement if it;
1. Stays during the dark numbers in addition make a return

2. Has a well financial statement

3. creates respectable cash flow

4. Creates a respectable return on investment (ROI) aimed at the situation

stockholders

Monetary achievement begins along a monetary evaluation based on past

records in addition upcoming predictions. Uncertainties you look on the
historical towards plan in addition foresee the upcoming you may switch
your company’s monetary presentation much healthier. A respectable
monetary strategy stretches you a thorough picture of the monetary health
of your corporation in addition the feasibility of your planned strategy.
The situation too assistances you recognize uncertainty you get out of the
way in execution therefore you may take act beforehand anything grave
happens like the money.

To perform a monetary valuation of your planned strategy does the next:

1. Approximation income in addition expenses.

2. Perform an involvement investigation towards conclude whether your
strategies make an optimistic involvement towards the foot streak.

3. Combine everything your statistics during one- in addition three-year

monetary forecast.
21

The icy actuality is which you are during corporate towards create cash.
Uncertainty you don’t acquire a profit on your investment you’ll no longer
contain a deal; they contain a luxurious hobby. Ouch. The situation hurts i
recognize but the situation’s the verity. Uncertainty you don’t believe the
situation skip this segment. But once you do this your monetary valuation
closes along an investigation of your ROI. Afterwards everything the
situation makes not at all senses to implement a strategy uncertainty the
situation does not return the wanted profit.

Estimating revenue and expenses; estimating costs in addition income is

an incomplete science. However the situation is intended towards provide
you along the extra money expenditures needed towards instrument every
zone of your strategy in addition the income you can create. During the
previous exercise we knew the possible income aimed at every aim bazaar
cluster in addition to the possible cost towards work items.

Revenue; a simple tactic towards guessing possible income is from every

spectators. Ideally your bazaar investigation will give you an uneven
notion of in what way much you may suppose towards create. Utilizing
the next formula towards conclude the projected income.

Expenses; tilt payments related along an aim otherwise act during the
strategies which are not fragment of your ordinary operating costs. Also
evaluation your present operating costs via predicting every article to
increase predictable development.
Contributing to the bottom line; fair since a bazaar appearances good-
looking doesn’t continuously mean you may serve the situation gainfully.
Beforehand your creative people start running calm advertisements
perform a rapid post investigation. An involvement investigation
concludes whether a specific aim cluster donates towards the general
22
monetary benefit of the corporation.

Projecting out your financial future; by comsemening everything your

sales in addition spending statistics in addition jutting them above three
years you may perceive during dark in addition snowy in what way fruitful
you’re corporate may be. Jutting too allows you towards develop the
corporate deprived of running out of cash. Income development is
continuously associated along extra money necessities towards create in
addition backing the extra income. All common monetary in addition
accounting system packages have functions for creating monetary
forecasts.

Utilize these utensils towards make your monetary forecasts via creation
suppositions based on your planned strategy. Make forecasts via month
via month year one in addition then via year aimed at the following two
years.

Do the following: Project the income statement; use the projected

income aimed at every aim bazaar cluster dogged during the guessing
income in addition cost section. Connect prices in addition operating
prices in addition utilize everything three statistics towards conclude net
revenue hope or loss.

Project the balance sheet; as sales upsurge additional business units also
upsurge variable possessions receivables inventories in addition
equipment variable accountabilities in addition accumulated expenditures
 in addition hopefully net revenue. If you’re net revenue plus the upsurge
during variable accountabilities corresponds towards otherwise surpasses
the upsurge during mutable possessions the entity contains the capitals
towards finance it. Uncertainty this is not the incident you must pay
additional obligation otherwise equity

Project cash flows; the info during steps 1 in addition 2 projects in what
way these figures affect your money tide paying particular care towards in
what way much new obligation otherwise equity you want towards donate
towards the corporation and when to inject it.

Olsen, E (2019)

7. Given that Mark prefers not to deviate from the firm's 2004 debt to equity
ratio, prepare the Corporation's pro-forma income statement and balance
sheet under the scenario of 40% growth in sales for 2005. You must justify
how the figures are derived.

Total Liabillities 728,952

Debt to Equity Ratio = = = 2.26
Total Equity 322,404

Income Statement for the year Ending 31 December 140%

2,00 2,00
5 4

Sales 6,580,000 4,700,000

Cost of Sale 5,428,500 3,877,500

Gross Profit 1,151,500 822,500

Operating Expenses 385,000 275,000

Fixed Expenses 126,000 90,000

Depreciation Expenses 35,000 25,000

EBIT 605,500 432,500

Interest Expense 92,400 66,000

EBIT 513,100 366,500
Taxes @ 40%
205,240 146,600

Net Income 307,860 219,900

24
Retained Earnings 629,784 321,924

Balance Sheet for the year ended 31 December

Assets

Cash & Cash Equivalents 117,600 60,000

Accounts receivable 490,815 250,416

Inventory 1,002,540 511,500

Total Current assets 1,610,955 821,916

Plants and equipment 560,000 560,000

Accumulated depreciation 220,865 175,000

Net Plants and Equipment 339,135 385,000

Total Assets 1,950,090 1,206,916

Liabilities & Equity

Accounts Payable 264,600 135,000

Notes Payable 539,000 275,000

Other current Liabilities 86,146 43,952

Total current Liabilities 889,746 453,952

Long-term debt 275,000 275,000

Total Liabilities 1,164,746 728,952

 Owner's Capital 155,560 155,560
Retained earnings
629,784 322,404

Total Liabilities & Owner's Equity 25 1,950,090 1,206,916

Working
219,900-321,924

= (102,024)

219,900-210,900 = 9,000

Check

1.28 1.79 60000

25041
5.33 7.46
51150
10.88 15.24
13500
2.87 4.02
27500
5.85 8.19

0.94 1.31 43952

480 -

100.00

Retained Earning

322,404-321,924 =480
8. In this paper, the writers attempted to demonstrate the use of actual
financial data for financial ratio analysis. They constructed a financial and
industry analysis for Motorola
26 Corporation. The objective is to show
students and readers exactly how to compute ratios for an actual company.
The paper also demonstrated the difficulties in applying the principles of
financial ratio analysis when the data are not homogeneous as the case in
many textbook examples.

RATIO ANALYSIS; monetary proportion investigation is utilized not

only after a corporation goes bankrupt but at a regular basis. if your
accounting history is reliable monetary proportion investigation is a useful
tool aimed at measuring companies for 5 proportion analysis; (i)
profitability proportion towards quantity the company’s aptitude towards
operate possessions aimed at profit; (ii) the liquidity proportion towards
quantity the company’s money availability; (iii) the proportion of activity
towards quantity the effectiveness of the company’s resource utilization;
(iv) the obligation proportion that measures the company’s aptitude
towards repay long-term debt; (v) measure the profit at investment at
shareholders via measuring market rates. This proportion makes sense
only uncertainty the underlying data is trusted for example there is no
fraud ulterior motive for an accounting report this reliability can be
achieved through regular independent external audits.

BANKRUPTCY PREDICTION; the proportion itself may not be a clear

pointer of monetary distress. The Altman Z score test is utilized towards
assesses the company’s monetary pain status. Altman uses a weighted
combination of financial proportions.
Altman z scores are given as follows; Z = w1T1 + w2T2 + w3T3 + w4T4 +
w5T5    .... w = parameter coefficient

T1 working capital overall possessions. Quantity present possessions

during relation towards the size of the corporation.

27
T2 return surplus total possessions. Quantity profitability that reflects
your corporation’s age in addition profitability.

T3 revenue since interest in addition tax/transfer of overall possessions.

Measure operational efficacy separately since levy in addition utilization

factors. Operating profit is recognized for example significant towards
long-term survival.

T4 bazaar price of capital ledger price of overall accountabilities. Add a

bazaar dimension to display safety value fluctuations with likely red flags.

T5 auctions overall possessions. A normal quantity of overall asset

turnover (significantly different since industry to industry)

The application of Altman z scores can be divided into two situations

depending on the corporation type: i private companies; ii a non-industrial
corporation.

(i) Altman Z score of private enterprise;

T1 present possessions present accountabilities overall possessions

T2 retained pays overall possessions

T3 interest in addition levies overall possessions beforehand return

T4 capital price overall accountabilities

T5 sales/ overall possessions

Zones of discrimination; the evaluation of whether a private firm would
face bankruptcy possibility is read since the zone of discernment chart;

Z' > 2.9 -“Safe” Zone

1.23 < Z' < 2.9 -“Grey” Zone

Z' < 1.23 -“Distress” Zone 28

(ii) Alman Z-Score for Non-Manufacturing Firms;

T1 = (Current Assets − Current Liabilities) / Total Assets

T2 = Retained Earnings / Total Assets

T3 = Earnings before Interest and Taxes / Total Assets

T4 = Market Value of Equity / Total Liabilities

Zones of discriminations;

Z > 2.6 -“Safe” Zone

1.1 < Z < 2.6 -“Grey” Zone

Z < 1.1 -“Distress” Zone

When we use proportion for insolvency forecast in addition fail to see

insolvency coming----it is not that the prediction method fails it is the
failure of the underlying data. Generally if the firm follows usually
acknowledged values in bookkeeping practice in addition hold regular
independent audits the data should be dependable in addition capable of
being assessed for monetary sorrow.

Louangrath, P (2015)
9. References
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Kumaran, S. (2015, June 29). “Essential Components of Financial Statements?"

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Lohrey, J. (2019, January 25). “ Importance of Ratio Analysis in Financial Planning”.

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analysis-financial-planning-80600.html

Hank, G. (2019). “Examples of External Financing Alternatives”.

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financing-alternatives-69025.html

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