# Financial management Oz Assignments

## Question 2–Financial Statements and Ratio Analysis

Income statement of CQU Auto –

 Particulars Amount Amount Revenue from sales \$85,000 Less - Cost of Goods sold \$50,000 Gross Profit \$35,000 Operating expenses Depreciation expense \$5,000 Selling expense \$4,000 General and administrative expenses \$7,500 Total Operating Expenses \$16,500 Operating profit \$18,500 Less - Interest expense \$3,500 Net profits before taxes \$15,000 Less - Income tax expense @ 30 % \$4,500 Net profit after taxes \$10,500

(a) Gross profit
The gross profit of a company has derived by subtracting the cost of goods sold by a company or the cost of sales from the total revenues earned from sale proceeds (Afrasinei, Georgescu and Istrate, 2016). The gross profit derived from the revenues and expenses accounts of CQU Auto for the year 2017 amounts to \$ 35000. This shows that the company CQU Auto has made a profit of \$ 35000 after deducting all the costs associated with the production and sale of goods.

(b) Operating profit
The operating profit refers to the profit a business derives from its operations after deducting all the operational costs, before the deduction of the company’s interests, and taxes. The operating profit of CQU Auto for the year 2017 amounts to \$ 18500. This profit has been derived after the deduction of the operational expenses of the company, which are operating expenses, depreciation expense and selling expense.

(c) BSBPMG522
The net profit before taxes is derived from the deduction of the income tax expense of a company from its earnings after the deduction of interest expenses but before the deduction of taxes. The net profit of CQU Auto before taxes amounts to \$ 15000.

(d) Net profits after taxes
The net profit after, simply called the net profits of a company refers to the net income earned by the company after the deduction of all the company’s expenses, taxes and interests. The net profit after taxes of CQU Auto amounts to \$ 10500.

(e) Cash flows from operations
The cash flow from operations or the operating cash flow refers to the amount of cash a company has generated from the amount of revenues the company has brought in excluding the expenses or costs associated to the investments of the company on capital items (Collins, Hribar and Tian, 2014).

 Cash flow from operations Particulars Amount Cash from operating activities Net income \$10,500 Income tax expense \$4,500 Depreciation expense \$5,000 Selling expense \$4,000 General and administrative expenses \$7,500 Interest expense \$3,500 - \$ 14,000 Cash from investing activities Nil Cash from financing activities Dividend from preference shares \$500 Cash flows from operations (\$13,500)

The cash flows of CQU Auto from operations amounts to - \$ 13500. This shows that the company has a negative cash flow from operations, which indicates that the operating expenses of the company have been much greater than its revenues or net income.

(f) Earnings available to ordinary shareholders
The earnings available to ordinary shareholders in a company is derived by the subtraction of the preferred dividends of the company from the net earnings earned by the company. This figure refers to the total amount of earnings available to the common shareholders of a company. However, if the earnings available to the common stockholders of a company are divided into the number of ordinary shares outstanding in the company, the earnings available to ordinary shareholders can be derived.

 Net profit \$10,500 Less - Preference share dividends \$500 Total earnings available to common shareholders \$10,000 Number of outstanding ordinary shares 5000 Earnings available to ordinary shareholders \$2

### Question 3–Financial Ratio Analysis(a) Computation of the financial ratios of CQU South Africa Pty Limited

 Particulars Ratio Liquidity ratios – Current ratio Current assets / Current liabilities 1.666666667 Quick ratio Quick asserts / Current liabilities 0.962318841 Activity ratios – Inventory turnover Cost of sales / Inventories for the period 7.008641975 times Average collection days Receivables turnover ratio / 365 days 41 days Total asset turnover Sales revenue / Sum of total assets 2.1 times Debt ratios – Debt ratio Total debt / Sum of all assets 0.533 Times interest earned (EBIT / Expenses on interest) 5.533333333 Profitability ratios – Gross profit margin (GP / Sales revenues) x 100 18.9 % Operating profit margin (OP / Sales revenues) x 100 5.14 % Net profit margin (NP / Sales revenues) x 100 2.53 % Return on investment Capital employed / Operating profit 0.16 % Return on equity Net income / Shareholders’ equity 0.11 %

#### The profitability ratios of the company show fluctuations and decreases during 2017. However, since the company is quite ahead of the industry in terms of profitability, it can be said the company is having a good profitability. The returns on the company’s equity, investment and the net profits are higher than industrial average of 2017.The graph of the debt ratios of the company shows that the times interest earned by the company have increased and the debt ratio of the company has decreased, which is a positive sign for the company.Thus, it can be understood that the company is having a good financial situation overall but should concentrate towards the improvement of its activity ratios for having a sound financial position.Question 4–Annuity and Single value calculations(a) Computation of equal annual end of year deposit if compounded annuallyPresent value of a two bedroom unit in CocoBay Resort in Noosaville = \$ 350000Rate of interest for purchasing the unit = 13 %Rate of inflation = 5 %Time frame = 20 %Since the rate of inflation, prevailing in the country is 5 %, the rate of interest increases by 5 %. Thus, rate of interest = 18 %.

 PV of year 1 0.947 PV of year 2 0.049 PV of year 3 0.002 PV of year 4 1.381 PV of year 5 7.269 PV of year 6 3.826 PV of year 7 2.013 PV of year 8 1.059 PV of year 9 5.578 PV of year 10 2.935 Sum of PV of 10 years 25.059