Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
a) Gross profit shows the difference between a firm's sales revenues and its direct cost of sales (COGS). Net profit, however, is calculated after deducting overheads (expenses) from the gross profit figure, i.e. it considers both indirect and direct costs in the calculation of profit. Gross profits will, therefore, always be greater than Net profits.
b) Note: SL students are not expected to use the Earnings Per Share ratio in this question.
Ratio
Firm
Commentary
GPM
Pia
Gross profit has fallen by 20% (from GPM of 50% to 40%).
Hayman
Gross profit has fallen by just 10% (from GPM of 50% to 45%); therefore Hayman has performed better in terms of its ability to control COGS.
NPM
NPM is stable at 20% but this means with a reduced GPM that overhead control is improving; overhead accounted for a 30% differential (comparing GPM and NPM) but only 20% by the Year 3.
NPM has improved by 5.2% and is quite stable. Hayman's ability to control overheads has also improved but Pia performed better.
ROCE
Fall in ROCE of 6.7% but the rate is still quite attractive at 14% return.
Improved by 25% thereby seems very attractive if performance can be maintained. Hayman's ROCE overtakes that of Pia in 3rd year and seems attractive at 15% return.
Quick ratio
High acid test ratio in Years 1 and 2; seems to have improved with the ratio falling to 1.5 (although we have no information about the type of industry that Pia operates in).
Fluctuating acid test ratio that is close to the minimum recommended of 1:1 so liquidity issues at Hayman could be a concern for some investors.
EPS (HL)
Improving EPS ratio will tend to attract investors (Pia's EPS has increased by 40% in the given time period).
Declining EPS ratio may drive away investors in the long term, especially since the EPS has fallen by 33%.
c) It is important for potential investors to consider non-financial factors when making investment decisions because not all options are made on quantitative grounds. For example:
It is true that company monetary statements will often consist of narrative information about staff as a key resource. However, under accounting regulation this resource is not sho
You are required to compute the value of both the firms using Net Income approach.
Net Present Value (NPV) In corporate finance, the current value (the value of cash to be received in the future expressed in today's dollars) of an investment in excess of the
Chrysler decides to avoid the problems associated with exporting autos to Japan by building a plant in Japan. The cost is expected to be $1 billion with $500 million to be spent no
A company commissioned a valuation of its land and buildings for inclusion in its financial statements. The valuation document contained the following details:
State about the Detection risk This is the risk that auditors 'substantive procedures don't detect a material misstatement in an account balance or class of transactions. It is
#pseudocode for finance class ..
complete the balance sheet and sales information using the following data: debt to assets ratio 50% current ratio 1.8x total assets turnover 1.5x day sales outstanding 36.5 days (c
Define the role of cash and of earnings while a corporation is deciding how much, if any, cash dividends to pay to common stockholders. In the long-run earnings are essential to
Explain the statement: “Exposure is the regression coefficient”. Answer: Exposure to currency risk can be suitably calculated by the sensitivity of the firm’s future cash flows a
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd