COLLEGE OF BUSINESS GOVERNMENT AND LAW
Due Date: Monday 7th June 2021 at 10:00pm
This assignment is marked out of 100 and will comprise 40% of the overall assessment for this topic
1. Workings – You must show any relevant calculations and workings.
2. Due date – Lodgment of your assignment is expected prior to the due date and time. If exceptional circumstances lead to the requirement for an extension, you must apply for that extension prior to the due date via the assignment extension tool on FLO, complete with supporting documentation. Otherwise, a late lodgment penalty applies of 5% of the allocated mark per day or part thereof overdue, up until the return date of the assignment. Assignments submitted after the return date will not be marked.
3. Lodgement – Lodge a single PDF file of your assignment. Yo u ma y w i sh to prepare your tables in Excel and embed them into a Word document prior to conversion to PDF. Alternatively, you may wish to work in Excel and then convert to a PDF format. Take note of any pagination issues so your assignment is presented properly.
4. Text-matching – Please submit your assignment through the text-matching tab on FLO. This is for your feedback before final submission of the assignment.
5. Academic integrity – Please be aware that you MUST abide by the University policy on academic integrity. For details on academic integrity for students, please refer to: https://www.flinders.edu.au/academicintegrity/student.cfm. Especially note that collusion, which is collaborating with another person on the preparation of answers for an individual assignment, is a breach of academic integrity. ALL work submitted must be your OWN. While discussing problems with other students is encouraged as a useful way to enhance your understanding of a topic, you should discuss lecture, textbook and tutorial examples for this purpose, NOT your assignment question.
The financial statements for H. G. Meyer Proprietary Limited are as follows:
H. G. Meyer Proprietary Limited
Statement of Profit or Loss
For year ended 30 June 20X2
Less: Cost of sales 662,093
Gross profit 115,011
Less: Operating expenses
Selling and administrative expenses $17,804
Wages expense 15,263
Depreciation expenses 7,428
Other operating expenses 2,011 42,506
Operating profit 72,505
Less: Interest expense 6,452
Profit before tax 66,053
Less: Income tax expense 25,232
Profit after tax $40,821
H. G. Meyer Proprietary Limited
As at 30 June
Current assets Cash $11,451 $12,844
Cash equivalents – 33,995
Accounts receivable 64,199 52,599
Inventory 69,814 75,366
Prepaid expenses 4,037 4,544
Total current assets 149,501 179,348
Non-current assets Motor vehicles (net) 26,190 15,747
Plant and equipment (net) 118,810 153,856
Total non-current assets 145,000 169,603
Total assets 294,501 348,951
Accounts payable 34,327 41,099
Notes payable 14,544 25,907
Income tax payable 25,526 25,232
Other expenses payable 22,854 26,179
Total current liabilities 97,251 118,417
Non-current liabilities Long-term debt 75,817 77,006
Total non-current liabilities 75,817 77,006
Total liabilities 173,068 195,423
Net assets $121,433 $153,528
Paid-up capital and reserves Ordinary shares* $27,180 $31,380
Retained earnings 94,253 122,148
Total shareholders’ equity $121,433 $153,528
* H. G. Meyer Proprietary Limited issues all of its ordinary shares @ $10 per share paid to $10 per share.
Calculate the following financial ratios for H. G. Meyer Proprietary Limited.
(Assume all sales/purchases of inventory are credit sales/purchases).
i. Return on ordinary shareholders’ funds/return on equity
ii. Return on capital employed
iii. Operating profit margin
iv. Gross profit margin
v. Average inventories turnover period
vi. Inventories turnover
vii. Average settlement period for accounts receivable
viii. Average accounts receivable turnover
ix. Average settlement period for accounts payable
x. Average accounts payable turnover
xi. Sales revenue to capital employed
xii. Current ratio
xiii. Acid test/liquidity ratio
xiv. Financial gearing (leverage) ratio
xv. Interest coverage ratio/times interest earned
xvi. Dividend payout ratio
xvii. Earnings per share ratio
Explain why financial analysts place their trust in ratios rather than absolute values.
Read the following quote and discuss what you think Fridson and Fernando (2002) meant when they used the phrase ‘passively calculating standard ratios’.
Corporations have substantial incentives to exploit the fact that accounting principles are neither fixed for all time nor so precise as to be open to only a single interpretation. Analysts, who appreciate the magnitude of the economic stakes, as well as the latitude available under the accounting rules, will see clearly that a verdict derived by passively calculating standard ratios may prove dangerously naive.
Source: Fridson, M. & Fernando, A., (2002). Financial statement analysis: A practitioner’s guide, 3rd Edition, John Wiley & Sons, New York.
Please answer all questions as precise as possible. Each question caries equal marks.
1. Suppose the Central Bank sells government bonds. Use a graph of the money market to show what this does to the value of money. [10 Marks]
2. Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a. The Central Bank increases the money supply;
b. People decide to demand less money at each value of money [10 Marks]
3. Inflation distorts relative prices. What does this mean and why does it impose a cost on society? [10 Marks]
4. If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional? [10 Marks]
5. Nathalie makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Nathalie’s payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th. [10 Marks]
Please ensure that you are aware of the University’s Academic integrity policy.
The lecture slides and textbook readings will give you the basic framework of the ideas, theories and concepts you will need to complete the assignment. These notes may not be sufficient on their own. You will need to make use of additional reading and extra references in preparing your assignment. When you are taking notes for your assignment,try and ‘translate’ what the author is saying into your own words. Don’t just copy out huge chunks from other people’s work, otherwise they will probably end up in your assignment with very little of the wording changed (which is plagiarism).
All sources, whether academic books, journal articles, newspaper, material from the internet etc., must be cited in the main text of your assignment itself