Explain two key benefits to a company for undertaking financial statement analysis

Calculate and present in a table the following ratios for the three years

 

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PART A                                                                                                

Scenario

The following financial statements are for Rupert’s Department Store, a sole trader, for the years ending 31 March 20X3, 20X4 and 20X5. The owners are consulting you for independent advice on the performance over the last year and have come to you for financial advice.

 

REQUIRED:

You have been given the financial statements for the last three years.You are asked to analyse how well the company has performed over the last year, ended 31 March 20×5, with recommendations for improving the company’s financial performance and position.

 

a) Calculate and present in a table the following ratios for the three years. Show your calculations(use Excel and show formulas if you can).

i. Gross profit %, Net profit %, Return on equity %

ii. Inventory turnover (times per year), Inventory turnover (days)

iii. Accounts receivable turnover (times per year), Accounts receivable turnover (days)

iv. Current ratio, Liquidity ratio, Equity ratio %.

 

b) Comment on the ratios calculated above, and the financial statement results for Rupert’s Department Store during the years 20X3–20X5 inclusive, in the following areas:

  • profitability
  • managerial performance
  • financial stability.

 

c) Recommend to Rupert what you consider to be the 6 most important things to do to correct his financial position and performance.

 

d)Explain two key benefits to a company for undertaking financial statement analysis.

[Note: You are not required to measure or report on any share market ratios.]

 

PART B                                                                                                

Select The Warehouse Group Ltd (WHS.NZ) listed on the NZ Stock Exchange and print the graph of ‘last share price’ over time for the most recent 12 months.

Your graph must have a title and clearly labeled axes.

You are also to give a possible explanation for the trend you observe.

Comment on how Return on Assets and Return on Equity from the Warehouse Group Ltd compare to Rupert’s Department Store in part A.

You can find the company the web site for NZX Data, which you can access from the Unitec Library:  On-Line Resources, Databases A-Z. Or access the data on https://nz.finance.yahoo.com.

 

Financial Statements

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