This assignment will be marked out of 45.
INSTRUCTIONS
How to Approach this Assignment• Please read all instructions before starting the assignment.• You should first study the relevant material in the text and make sure you understand the concepts covered.• Download the Assignment Answer Booklet to answer assignment.(No other file will be accepted for marking.)
BackupsOnce you have started working on an assignment you should make backups. It pays to rename different versions of your work. A simple way to do this is to use the Save as file instruction and add a number or letter to the end of the file name. (This allows you to go back to an earlier version.)
ASSIGNMENT BRIEF
The Joythi family are the owners of Jayam Ltd, a medium sized company dealing in crockery. Upon the death of their father a year ago, the older brother Paran took over as the managing director, but some of the family are concerned with the current performance of the business. They have been doing some investigating and they produce a table showing the industry and previous year’s ratiostogether with industry averages for 2016 (refer Appendix A). Jayam Ltd ‘s comparative financial statements for the years ended 31 March 2016 and 2015 are provided below.
Note: Analysis ratios for use with the Cunningham textbook are listed in Appendix B
Jayam LimitedComparative Statement of Financial Performancefor the year ended 31 March 2016 2016 2015 $’000 $’000Sales (all on credit) 4,200 4,500 Cost of Goods Sold 2,940 3,000 Gross Profit 1,260 1,500 Selling Expenses 305 256 Administration Expenses 487 501 Interest 142 135 934 892 Net Profit before Tax 326 608 Income Tax Expenses 114 201 Net Profit after Tax 212 407 Dividends 300 300 Retained Earnings (88) 107
Jayam LimitedComparative Statement of Financial Position as at 31 March 2016 2016 2015 $’000 $’000Shareholders’ Funds Contributed Share Capital 3,000 3,000 Retained earnings 1,568 1,656 4,568 4,656 Represented by: Current Assets Bank 35 165 Marketable Securities 126 134 Accounts Receivable 441 595 Inventory 790 613 Prepaid Expenses 56 62 1,448 1,569 Current Liabilities Bank Loan (Current Portion) 170 170 Accounts Payable 655 489 Accrued expenses 89 78 914 737 Working Capital 534 832 Non-current assets Equipment 1,449 1,667 Property 3,421 3,169 4,870 4,836 Less Long Term Liabilities Term Loan 836 1,012 Net Assets 4,568 4,656
Required:
a) Complete the ratio analysis figures for the 2016 in the template in your Assignment 2 Answer booklet. (11 marks)
b) Report
You are required to write a report to the Joythi family on the financial performance of Jayam Ltd. in 2016 and the financial position at year end. You should base your report on the financial statements, the ratios for the two years and the selected industry averages.
Your discussion should focus on the following areas:(i) Return on Owners’ Equity (5 marks)(ii) Operating Performance (10 marks)(iii) Liquidity and Financial Flexibility (6 marks)
Your conclusion should identify two significant problem areas at Jayam Ltd. and advise what action should be taken by management to address the problems identified. (8 marks) Report Format (5marks)
Note: Appendix 2 of the Course Guide gives guidelines for writing a report
Total Marks [45 marks]Appendix A):RATIOS AND INDUSTRY AVERAGES (2016 ANALYSIS RATIOS TO BE COMPLETED IN YOUR ANSWER BOOKLET)
2016 2015 Industry AveragesDebt Ratio
27%
40%Current Ratio
2.13:1
2:1Quick Ratio
1.21:1
1:1Return on Owners’ Equity
9%
10%Return on Total Assets
10%
8%Inventory Turnover
5.51x or 66 days 5 xor 73 daysAccounts Receivable Turnover
7.86 x or 47 days 8 x or 46 days
Gross Profit Percentage
33%
32%Profit margin
9%
10% APPENDIX B):ANALYSIS RATIOS FOR USE WITH CUNNINGHAM
TYPE OF RATIO REFERENCE PROFITABILITY Chapter/ Page 1 Profit Margin Ch. 7 p.293 (280) Net Income after tax x 100Net Sales2 Gross Profit Percentage Ch. 7 p.293 (281) Gross Profit x 100Net Sales3 Return on Total Assets Ch.8 p.343 (323) (Net Income + Interest Expense) x 100Average Total Assets4 Return on Owner’s Equity Ch.8 p.324 (344) Net Income x 100Average Owner’s Equity EFFICIENCY 5 Inventory Turnover Ch. 8 p.326 (345) Cost of Goods Sold Average Inventory6 Number of Days in Selling Period Ch. 8 p.327 (346) 365Inventory Turnover7 Accounts Receivable Turnover Ch. 8 p.327 (347) Net Credit SalesAverage Accounts Receivable8 Number of Days in Collection Period Ch.8 p.328 (347) 365Accounts Receivable Turnover LIQUIDITY 9 Current Ratio Ch. 8 p.337 (318) Current Assets Current Liabilities10 Quick Ratio Ch.8 p.338 (318) Quick AssetsCurrent LiabilitiesWhere Quick Assets = Cash + Accounts Receivable + Short Term Marketable Securities + Short Term Notes Receivable FINANCIAL GEARING 11 Debt Ratio Ch. 8 p.339 (320) Total Liabilities x 100Total Assets12 Interest Coverage Not in text Net Income + Interest ExpenseInterest Expense OTHER 13 Sales % Increase Not in text (Sales Year 2 – Sales Year 1) x 100Sales Year 1
Marking Criteria
This will give guidance in preparing your report.