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You have been commissioned to analyse the financial statements of MILOPA LIMITED. Below are the Consolidated statement of financial position and the Statement of Comprehensive Income of the companies.

STATEMENTS OF FINANCIAL POSITION
as at 31 December 2011
Group

Note 2011 2010
RM’000 RM’000
Assets
Property, plant and equipment 3 889,741 897,505
Goodwill 4 61,024 61,024
Investments in subsidiaries 5 – –
Investment in an associate 6 3,210 3,189
Deferred tax assets 7 9,482 10,441
Trade and other receivables 8 23,802 22,653

Total non-current assets 987,259 994,812

Trade and other receivables 8 444,854 354,303
Inventories 9 517,573 380,539
Current tax assets 176 344
Cash and cash equivalents 10 52,461 48,683

Total current assets 1,015,064 783,869

Total assets 2,002,323 1,778,681

Equity

Share capital 234,500 234,500
Reserves 10,560 37,016
Retained earnings 395,800 341,820
Total equity attributable to owners of the Company 11 640,860 613,336

Liabilities

Loans and borrowings 12 337,711 326,298
Employee benefits 13 42,316 42,537
Deferred tax liabilities 7 66,696 75,595

Total non-current liabilities 446,723 444,430

Loans and borrowings 12 4,223 87,256
Trade and other payables 14 878,321 623,269
Taxation 32,196 10,390

Total current liabilities 914,740 720,915

Total liabilities 1,361,463 1,165,345

Total equity and liabilities 2,002,323 1,778,681
STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 31 December 2011
Group

Note 2011 2010
RM’000 RM’000

Revenue 4,700,994 4,026,319
Cost of goods sold (3,158,877) (2,682,027)

Gross profit 1,542,117 1,344,292

Other income 1,595 736
Distribution and selling expenses (828,947) (749,794)
Administrative expenses (128,711) (95,576)
Other expenses (6,626) (12,167)

Results from operating activities 15 579,428 487,491

Finance income 458 35
Finance costs (21,398) (21,669)
Net finance (costs)/income (20,940) (21,634)

Share of profit/(loss) of an equity accounted associate,
net of tax 321 (113)

Profit before tax 558,809 465,744

Income tax expense 17 (102,508) (74,346)

Profit for the year 456,301 391,398

Other comprehensive (expense)/income, net of tax

Cash flow hedge (26,456) 4,125
Defi ned benefi t plan actuarial (losses)/gains (3,671) 2,384

Other comprehensive (expense)/income
for the year, net of tax 18 (30,127) 6,509

Total comprehensive income for the year 426,174 397,907

Basic and diluted earnings per ordinary share (sen) 19 195 167

STATEMENTS OF CASH FLOWS
for the year ended 31 December 2011
Note 2011 2010
RM’000 RM’000
Net cash from operating activities 581,844 508,926
Cash fl ows from investing activities

Acquisition of property, plant and equipment (ii) (93,015) (143,915)
Finance income received 458 35
Dividend received from an associate 300 165
Proceeds from disposal of property,
plant and equipment 1,574 3,327

Net cash (used in)/from investing activities (90,683) (140,388)
Cash flows from fi nancing activities

Dividends paid to owners of the Company 20 (398,650) (351,750)
Finance costs paid (21,398) (21,669)
Payment of finance lease liabilities (3,204) (3,453)
Proceeds from borrowings 165,000 58,000
Repayment of borrowings (202,761) (47,500)

Net cash used in financing activities (461,013) (366,372)

Net increase in cash and cash equivalents 30,148 2,166
Cash and cash equivalents at 1 January (i) 22,313 20,147
Cash and cash equivalents at 31 December (i) 52,461 22,313

Answers all the questions below .
You are required to determine :
Question 1
What is the financial position of the company in term of leverage, liquidity and fluidity? Were the position better in 2011 compared to 2010 ?
Possible ratios :
- Leverage ratio
- Current Ratio
- Liquid ratio
- Cash ratio
Question 2
How is the performances of the company in managing each important type of assets and the overall assets value ? Were the performances better in 2011 than 2010 ?
Possible ratios :
- Account receivable turnover
- Inventory turnover
- Current assets turnover
- Assets turnover
Question 3
How is the profitability performance of the company in term of profit margin and the return on investment ?
Possible ratios :
- Gross profit margin
- Net profit margin
- Return on Investment
- Return on Equity
- Return on Assets
- Payback period

Question 4
Profit for the year for 2011 was much better than 2010. What were the factors that contributed to the better performances in 2011 ?

Question 5
The potential investor who want to invest in the company is concern about the insolvency risk of the company. He requested you to calculate the Altman’s ratios of the company. Is the company at risk of being insolvent in the near future?
Question 6
Based on the above analysis and the evaluation of the three set of financial statements of the company for the two years, what is your conclusion on the financial position and the performances of the company during the last two years ?

Cash ratio

leverage ratio

The profit of a business is calculated through the income statement. This includes:

1. Calculating the gross profit by deducting the cost of goods sold from the revenues or the net sales.
2. Calculating profit before tax by adding the activities and finance income and deducting activities and finance expenses or costs to/ from the gross profit.
3. Calculating profit after tax by deducting the income tax from the profit before tax.
4. Calculating the net profit or the comprehensive income by adding the comprehensive income and deducting the comprehensive expenses or costs to/ from profit after tax.
The profit of the business reflects the financial performance of the business.
From this we can see that the best way to find out the factors that affected the profits of a business or its financial performance is by studying its income statement.
Here in the NESFAST LIMITED the factors that contributed to the higher profits or the better performance are:
1. The revenues or net sales are higher in 2013 than 2012 and at the same time the cost of goods sold per unit is lower in 2013 than2012 which resulted in a higher gross profit in 2013 than 2012.
2. The activities income is higher in 2013 than 2012, and also the activities costs are; but as the 2013’s gross profit is much higher than 2012, that it covers the higher activities costs and exceeds it; that still the 2013’s profit before tax are higher than 2012.
3. The net finance costs are less in 2013 as the finance income is more in 2013 than 2012, and there is higher finance costs too but the difference between the2013 and 2013 finance income is more the difference between their finance costs; which contributed to the better performance and higher profits before tax in 2013.
4. In the income statement we can see that the income tax and comprehensive costs are more in 2013; but still the comprehensive income in 2013 is more as the difference between profit before tax in 2013 and 2012 is more than the difference between their comprehensive costs.
To sum up the factors that contributed to the higher profits in 2013 and so the better performance are the higher revenues or sales, other incomes, finance income and the lower costs per unit of currency of revenues (all the type of costs) (this is found by dividing the costs by the revenues).