Extracts from FG’s financial statements are provided below: Consolidated statement of financial position at 31 March 2014 2013 166 Total assets 210 EQUITY AND LIABILITIES Equity attri
Trang 1November 2014 10 Financial Management
FG is a listed entity that operates in a highly competitive market A new entrant to this market (which entered on 1 June 2013) has created pressure within the market by developing a
marginally lower quality product and selling it at a lower price The result has been a shift in market share to this new entrant
You have been asked to review the financial performance and position of FG for a large
institutional investor who has identified FG as a potential investment
FG’s share price fell significantly following poor interim results The share price was $5.29 on 31 March 2013 and $3.94 on 31 March 2014 FG announced any final dividend was likely to be in the form of a scrip dividend
Extracts from FG’s financial statements are provided below:
Consolidated statement of financial position at 31 March 2014 2013
166
Total assets
210
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
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Consolidated statement of comprehensive income for the year
Profit for the year
1 The long-term borrowings are repayable in 2019
2 FG has a facility in place permitting short-term borrowings up to a maximum of $50 million
3 Goodwill was impaired this year and this has been charged to operating expenses No further investments were acquired in the year
(Total for Section B = 50 marks)
End of Question Paper Maths Tables and Formulae are on pages 15 to 17
Required:
(a) (i) Calculate the P/E ratio for FG at 31 March 2014 and 31 March 2013; and
(ii) Explain what conclusions can be drawn from FG’s P/E ratios and the movement
in the share price in the year
(5 marks)
(b) Analyse the financial performance and financial position of FG and discuss whether or
not you would recommend that FG be considered further for investment (6 marks are available for the calculation of relevant ratios)
(20 marks) (Total for Question Seven = 25 marks)
Trang 3September 2014 10 Financial Management
QW, a listed entity, manufactures recyclable packaging On 1 September 2013, after much negotiation,
QW secured a contract with one of the largest supermarket chains in the country This contract is
expected to double QW’s market share within the next two years
On 1 December 2013 QW acquired 80% of the equity share capital of one of its suppliers, RT, in order to safeguard its supply chain
QW’s share price was $1.70 on 31 December 2012 and $3.42 on 31 December 2013 A client of yours is considering investing in QW’s shares
The following financial information for QW is available:
Consolidated statement of financial position as at 31 December 2013 2012
74
Current liabilities
40
Trang 4Financial Management 11 September 2014
Consolidated statement of profit or loss for the year ended 31
Profit for the year
The notes to the financial statements include details of a contingent liability On 20 October 2013 a
chemical leak at one of QW’s plants caused a local river to be polluted and wildlife was significantly
affected The investigation is at an early stage and it has not yet been proven that QW acted negligently
QW has already incurred legal fees but the extent of the clean-up costs and potential fines that QW will have to pay are uncertain at the reporting date
End of Question Paper Maths Tables and Formulae are on pages 15 to 17
Required:
(a) Analyse the financial performance and position of QW based on the information provided and
discuss whether you would recommend QW for equity investment at this time (8 marks are
available for the calculation of relevant ratios)
Trang 5Financial Management 10 May 2014
VEG is an entity that started trading in January 2013 manufacturing and selling vegetable “smoothie” drinks The entity uses innovative technology that pasteurises fresh drinks and gives them a shelf life
of 8 weeks VEG currently operates solely in Country X and is the only producer to use this
VEG has performed well in its first year of trading, selling to three large supermarkets and securing a contract with another supermarket to produce an own-brand product This contract was signed in October 2013 The directors believe that VEG could exploit similar opportunities in both domestic and overseas markets if they expanded further However, any further expansion would require
significant capital investment in property, plant and equipment
You are a financial advisor and have a cash-rich client who is looking to make a private investment in
an entity in return for equity shares Your client is particularly interested in the technology that VEG is currently using He is enthusiastic about VEG’s potential, although he has not as yet looked at the financial performance and position of the entity You have so far approached the directors of VEG who have confirmed that they would be interested in such an investment into their business as it would potentially allow them to undertake the capital investment required to expand
The directors have emailed you the following financial information about VEG:
Statement of financial position as at 31 December 2013
Trang 6May 2014 11 Financial Management
Statement of profit or loss for the year
FORECAST
2013 ACTUAL
Profit for the year
2 The directors have estimated that forecast revenue can be achieved with the current levels of property, plant and equipment
3 The directors are forecasting the following balances as at 31 December 2014:
$000
No further forecast information is available at this time
4 Administrative expenses for the year ended 31 December 2013 includes professional fees of
$30,000 incurred in the business set-up, $40,000 in marketing and $20,000 for the cost of
training staff in the production processes
Total for Section B = 50 marks
Required:
Write an email to your client in which you:
(a) analyse the actual and forecast financial performance and position of VEG using the information
provided (6 marks are available for the calculation of relevant ratios);
(18 marks)
(b) explain the additional information that you would recommend he obtains before making an
investment decision; and
(4 marks)
(c) explain, briefly, the limitations of using ratio analysis as a means of deciding on this potential
investment
(3 marks) Total for Question Seven = 25 marks
Trang 7Financial Management 12 March 2014
Question Seven
ROB is considering investing in LW, a listed entity, and has asked for your analysis of the financial performance and financial position of LW based on the most recently published financial
information
LW is a manufacturing entity operating in the technology sector The entity has two large
manufacturing plants, one in Asia and the other in South America The majority of sales revenue
is earned in Europe and North America
LW recently invested in technology associated with mobile phone ports for motor vehicles and sales of these items began on 1 April 2013
The financial statements for LW are provided below:
Consolidated statement of financial position as
at 31 December
Non-current assets
340
Current assets
265
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Consolidated statement of comprehensive
income for the year ended 31 December
Profit for the year
(13)
39
Other comprehensive income that will not be
reclassified to profit or loss
41
Revaluation gains from property (net of tax) 20
Total comprehensive income
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
2 There was a significant labour dispute in February 2013 in the manufacturing plant in South America LW settled the dispute within one month but incurred significant legal fees in the process
(Total for Section B = 50 marks)
End of Question Paper Maths Tables and Formulae are on pages 15 to 17
Required:
(a) Analyse the financial performance and the financial position of LW
(8 marks are available for the calculation of relevant ratios.)
(20 marks)
(b) Discuss why investors may find it useful to review the segmental information of LW
when attempting to assess the future profitability of LW
(5 marks) (Total for Question Seven = 25 marks)
Trang 9November 2013 10 Financial Management
You have been approached by a friend who is considering investing in EMS, a fast growing entity that has had significant positive media coverage in the last year Your friend performed a brief review of the financial statements and sent you this message:
“I am concerned that EMS appears to have invested heavily in property, plant
and equipment in the year, which seems to have resulted in an overdraft at
the year end Is this an indication of poor management? I am a little
confused because everything I have read about this entity and its
management has been positive and its share price increased significantly
from $5.08 on 31 December 2011 to $9.27 on 31 December 2012.”
EMS paid a dividend of $50 million in 2012 ($100 million in 2011)
The financial statements of EMS are provided below:
Statement of financial position as at 31 December 2012 2011
ASSETS
Non-current assets
Trang 10Financial Management 11 November 2013
Note 1
In September 2012 EMS secured a short term overdraft-facility of up to $80 million for nine months The directors submitted an application for long term borrowings of $100 million in November 2012 The directors were awaiting a response from the lender at the year end
(Total for Section B = 50 marks)
End of Question Paper Maths Tables and Formulae are on pages 15 to 17
Statement of comprehensive income for the year
Profit for the year
Revaluation gain on property, plant and equipment 100 25
Other comprehensive income that may be reclassified to
profit or loss
Tax effects of other comprehensive income (28)
Other comprehensive income for the year, net of tax
(a) Analyse the financial performance of EMS for the year ended 31 December 2012 and
its financial position at that date Your analysis should have as its primary focus the areas that would be of particular relevance to a potential investor
(Note: 8 marks are available for the calculation of relevant ratios)
(21 marks)
The convertible borrowings are due for conversion or redemption in December 2014
(b) Explain the impact on the investor ratios if the majority of the holders choose to convert
to equity shares
(4 marks) (Total for Question Seven = 25 marks)
Trang 11September 2013 10 Financial Management
Miss K received a significant inheritance from her grandparent a number of years ago and as a result founded her own label cosmetics business, KL Miss K’s friend is a renowned actress and agreed, at the time the business was founded, to become the “face” of the brand in return for 5% of KL’s equity She has since been seen in all of the entity’s advertising which has successfully resulted in KL rapidly gaining market share KL now sells a large range of cosmetic products, typically to large department stores However, despite the rapid gain in market share leading to increased revenues, KL was loss making for the first few years of operation due to the significant costs involved in developing the large range of products and the brand KL has also struggled to manage working capital as the large department stores require inventories to be available to them immediately and have demanded extended credit terms
KL issued a convertible loan instrument in 2010 to Mr B, a private investor, and invested the funds in
further developing brand awareness in advance of launching the brand in the Asia markets at the start of November 2012
The convertible loan instrument is due for repayment or conversion in December 2013 Mr B is in the fortunate position of not requiring the repayment and is considering converting the instrument into equity
He would, therefore, like an assessment of whether or not KL is likely to be a successful equity investment The financial statements for KL are provided below:
Consolidated statement of financial position at 31 December 2012 2011
2,375
Total assets
2,416 2,460 2,486
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Total equity
(210) 1,550
Consolidated statement of comprehensive income for the year
Profit for the year
(68)
250 165
Trang 12Financial Management 11 September 2013
End of Question Paper Maths Tables and Formulae are on pages 15 to 17
Required:
(a) Analyse the financial performance and the financial position of KL based on all the information provided (8 marks are available for the calculation of relevant ratios)
(20 marks)
(b) Explain any additional factors concerning the future performance of KL that Mr B should consider
prior to converting his investment to equity shares of KL
(5 marks)
Total for Question Seven = 25 marks
Trang 13Financial Management 10 May 2013
POP organises events and music festivals throughout the USA and in July 2011 made two 100% acquisitions The first was to acquire A, an events security business that POP had been using to provide security services on an outsourcing basis The second acquisition was B, a highly successful entity that organises and runs events and music festivals in Europe Both A and B had established good reputations and as a result a number of intangible assets were recognised on acquisition, in
accordance with IFRS 3 Business Combinations and IAS 38 Intangible Assets.
POP uses an online ticket agent for ticket sales for all of its events POP paid a dividend of $30 million relating to the year ended 31 March 2012 and declared a dividend of $40 million for the year ended 31 March 2013 which was paid after the year end The share price of POP was $2.90 per share on 31 March 2012 and $2.50 on 31 March 2013
You have been approached by a client who is considering making an equity investment in POP You have been asked to perform some preliminary analysis of its financial performance and financial position
POP’s financial statements are presented below
Consolidated statement of financial position of POP group as
Long term borrowings
Total equity and liabilities
525
Trang 14May 2013 11 Financial Management
Summarised statement of comprehensive income of POP for
the year ended 31 March
Other comprehensive income
_76_
Items that may subsequently be reclassified to profit or loss
Exchange differences on translation of foreign operations _(2)_
Total comprehensive income
2 Following the accident in July 2012, POP invested in new safety equipment for all of its entities Several key performers have expressed concerns, however, about performing at an event that is due to be held in Europe in May 2013 The directors believe that the bad
publicity that B received following the accident had a negative effect on revenue generated by
B in the year to 31 March 2013 The directors concluded, however, that no impairment of the goodwill in B was required as the issue was a one-off and had been addressed by the
investment in the new equipment
3 The investment in the new safety equipment resulted in POP avoiding significant repairs which had been a large part of administrative expenses in previous years
The requirement for question seven is on the next page
TURN OVER
Trang 15Financial Management 10 March 2013
Question Seven
QW plc is looking for long-term funding and has submitted an application to a bank requesting
a loan of $50 million You work for the bank and have been asked to perform a review on the financial statements of QW You have also been asked to provide an initial recommendation
as to whether or not this application should proceed further
The statement of financial position as at 30 June 2012 and its comparative is shown below:
Trang 16March 2013 11 Financial Management
The statement of comprehensive income for the year ended 30 June 2012 is shown below
together with its comparative:
Profit for the year
(6)
17
Other comprehensive income:
15 Revaluation gain on Property, plant and equipment 13 -
Tax effects of other comprehensive income (4)
Other comprehensive income for the year, net of tax
(1)
2
14
In addition to obtaining extracts from the financial statements provided below, you have
highlighted a section of the annual report where the newly appointed Chief Executive Officer
of QW made the following comment:
“We commenced the planned expansion in the second quarter of the financial period with
much success Revenue has increased 44% in the last 12 months and profitability continues
to improve with post-tax profits of $17 million in this year During the year we acquired a
strategic 35% investment in AB, our main supplier, and now have representation on its board
We have also invested in other non-current assets and this will ensure the expansion
continues as planned.”
(Total for Section B = 50 marks)
End of Question Paper Maths Tables and Formulae are on pages 15 to 17
Required:
(a) Prepare a report that analyses the financial performance and financial position of QW
and makes a recommendation, based on your analysis, as to whether the application
should proceed further (8 marks are available for the calculation of relevant ratios.)
(21 marks)
(b) Explain briefly the potential limitations of performing analysis while relying on:
(i) the financial information of QW from one year to another; and
(ii) the narrative information of QW provided in the annual report
(4 marks) (Total for Question Seven = 25 marks)
Trang 17November 2010 10 Financial Management
Question Seven
GD is an entity that operates in the packaging industry across a number of different markets and activities GD has applied to the financial institution where you are employed, for a long term loan of $150 million Your immediate supervisor was working on the report and
recommendation in response to GD’s request, but has fallen ill and you have been asked to complete the analysis and prepare the supporting documentation for the next management meeting to discuss applications for lending
Extracts from the consolidated financial statements of GD are provided below:
Statement of financial position as at 30 June 2010 2009
292
Total assets
304
EQUITY AND LIABILITIES
Equity attributable to owners of the parent