Analyse the overall liquidity position for each companies

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Reference no: EM132184398


Your team has been hired as financial analysts by Paramount Investment Fund. The Fund has identified the Capital Goods industry to be experiencing growth and have selected two firms as potential investments. The Fund requires your team to analyse the financial position and performance of the above assigned two companies for the two stated financial years (2017 and 2018), and to provide a recommendation as to which may be the best company for the fund to invest into, if any. As a financial analyst, you are primarily concerned with three main financial aspects for each of the two firms: overall liquidity, capital structure and shareholders' profitability.

Your task involves answering the following 5 questions in your own words (i.e. do not simply "cut and paste" information from the Annual Report or any other source). You must apply critical thinking concepts when explaining and justifying your choices.


QUESTION 1: Analyse the overall liquidity position for each of the two companies in 2018 as compared to 2017. Calculate the values for two liquidity ratios to help support your answer and justify why you have chosen these ratios. Note: ensure that you analyse in this question, not just describe the ratio values.

QUESTION 2: Calculate the Cash Conversion Cycle (CCC) for each of the two companies in 2017 and 2018. Using your answer, analyse the efficiency of each of the two companies in managing their working capital in 2018 as compared to 2017. Note: ensure that you analyse in this question, not just describe the CCC values.

QUESTION 3: a. Analyse the sources of finance for each of the two companies in 2018 as compared to 2017. Use two capital structure ratios to support your answer and provide an explanation regarding the changes in the composition of the sources of finance for each enterprise. Note: ensure that you analyse in this question, not just describe the ratio values.

b. Assume that the average debt ratio for the Capital Goods industry in 2018 was around 50 per cent. What can you infer about each of the two firms' current capital structure and gearing (leverage) effect in 2018 as compared to the industry average?

QUESTION 4: Using the DuPont method, analyse the profitability of each of the two companies in 2018 as compared to 2017 from a shareholder's point of view. Based on your calculations, explain the main reason(s) for the change in the profitability for each company over the two years. Note: ensure that you analyse in this question, not just describe the ratio values.

QUESTION 5: In light of your analysis in questions 1 to 4, what is your team's final recommendation to Paramount Investment Fund, with regards to the potential of investing in any of the two firms? Discuss the basis for your recommendation.

Attachment:- Assignment File.rar

Reference no: EM132184398

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NOTES - All ratios must be selected from those identified in your prescribed textbook (Bakry 2016). The use of ratios other than those identified in the textbook and discussed in class will not gain any marks. Include all supporting calculations for any values shown in Questions 1 to 5 in the Appendix. The Appendix is not included in the word count. Note: Marks will not be awarded if no supporting ratio calculations are shown in the Appendix.


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In questions 1-4, an analysis is required and not just a description of the ratio. That means you need to explain how the ratio changed over time and what are the main reason(s) for that change, and how that will impact the company’s financial position. Question 5 requires you to synthesise the analyses from questions 1-4 to formulate a well-justified argument/conclusion, which is both logical and critical. In calculating the ratios, assume that the Sales are the Operating Revenues (available in the Profit & Loss statement), and the Sales (i.e. Operating Revenues), for each year specified, are all on credit.


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In calculating the ratios, ignore abnormals. You should only use figures before abnormals such as ‘Net profit after tax before abnormals’. Ratios calculated by the Morningstar analyst and available within the database are not to be used as guidance for calculating your ratios. The analyst has calculated some of the ratios using formulas different than the one covered in this unit. The assignment does not require the obtainment of industry/peer group averages for any of the calculated ratios. Where relevant, an industry average has been provided within the question. It is important to note that the objective of the assignment is to compare each of the two companies’ financial performance over the specified two-year period.


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Reference List - Include any references you have used and cited in your assignment. Make sure all answers are fully referenced using the Harvard referencing system, including in-text citations and a reference list at the end of your assignment. ASSIGNMENT SUBMISSION - This assessment task is to be submitted online via the Turnitin link within the ‘Assessments - Group Assignment (20%)’ folder on vUWS. This assignment is an online only submission. The only acceptable file types are word files .doc, .docx. There is no need to hand in a hardcopy of your assignment to your tutor. Your submission should not be in any other format and should not include any pictures – all work, including the working out/calculations of the ratios should be typed in Word. Calculations that are handwritten will not receive any marks.


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FORMAT - A submission of no less than 1350 words and no more than 1650 words is expected, excluding the reference list and appendix. Submissions must be word processed in either Times New Roman or Arial font, 12 point and 1.5 spaced with a footer on each page including your group leader’s name, student ID and page number. All working out for calculations should be in the Appendix of the assignment and must also be word processed. Handwritten calculations are not acceptable.

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