Ratio 1

Both questions have been taken from Bpp

Second example

Shown below are the recently issued (summarised) financial statements of Harbin, a listed company, for the year ended 30 September 2007, together with comparatives for 2006 and extracts from the Chief Executive’s report that accompanied their issue.
Income statement
—————————————————————————–2007——- 2006
—————————————————————————–RM’000—– RM’000
Revenue—————————————————————– 250,000—— 180,000
Cost of sales————————————————————- (200,000)—— (150,000) —————————————————————————————–––––––– ––––––––
Gross profit—————- ———————————————–50,000——— 30,000 Operating expenses—————————————————— (26,000)—— (22,000) Finance costs—————————————————————- (8,000)——– (nil) ————————————————————————————————–––––––– –––––––– Profit before tax—————————————————————– 16,000—– 8,000 Income tax expense (at 25%)————————————————– (4,000)— (2,000) ———————————————————————————————-–––––––– ––––––––
Profit for the period—————————————————————– 12,000—– 6,000

Property, plant and equipment ————————————————210,000— 90,000 Goodwill —————————————————————————-10,000—– nil
————————————————————————————-–––––––– –––––––– ———————————————————————————————220,000—- 90,000 —- Current assets
Inventory—————————————————————————- 25,000—— 15,000 Trade receivables—————————————————————– 13,000—– 8,000 Bank———————————————————————————— nil——- 14,000 ———————————————————————————————––––––––– –––––––– ——————————————————————————————–38,000—- 37,000 ——————————————————————————————––––––––– –––––––– Total assets—————————————————————————– 258,000– 127,000

Equity shares of RM1 each———————————————————– 100,000 100,000 Retained earnings ———————————————————————— 14,000 12,000 ——————————————————————————————–––––––– ––––––––
————————————————————————————————114,000 112,000

Non-current liabilities
8% loan notes—————————————————————————– 100,000—– nil

Current liabilities
Bank overdraft——————————————————————————– 17,000 nil Trade payables—————————————————————————– 23,000 13,000 Current tax payable————————————————————————– 4,000 2,000 ——————————————————————————————––––––––– –––––––– ————————————————————————————————–44,000 15,000 Total equity and liabilities————————————————————– 258,000 127,000

Extracts from the Chief Executive’s report: ‘Highlights of Harbin’s performance for the year ended 30 September 2007:

an increase in sales revenue of 39%

gross profit margin up from 16•7% to 20%

a doubling of the profit for the period.

In response to the improved position, the Board paid a dividend of 10 sen per share in September 2007; an increase of 25% on the previous year.’

You have also been provided with the following further information. On 1 October 2006, Harbin purchased the whole of the net assets of Fatima (previously a privately owned entity) for RM100 million, financed by the issue of $100,000 *% loan notes
The contribution of the purchase to Harbin’s results for the year ended 30 September 2007 was:

Revenue———– 70,000
Cost of sales (40,000)
—————- –––––––
Gross profit 30,000
Operating expenses (8,000)
—————————–––––––
Profit before tax 22,000

Interest-8000
Loan note-100000
tax charge 5500-does this beling to Fatima?((2000*25%=2000-500=1500+4000)
Without fatima
First 3 ratios

ROCE(24000-22000)/114000-(22000-5500)*100%=2.05

NEt asset(250000-70000)/114000-(22000-5500)=1.85

Net profit(before tax) margin=24000-22000/(250000-70000)*100=1.1

If we see in the second example it has only 22000 profit before tax which has been deducted from PBT of 20×7(profit before tax 16000+8000=24000) but finance cost 8000 has not been deducted why?

Also, if we see 22000-5500why?also why the resul of this is deducted from equity part 114000?

In the first example 5000 deducted which has not Profit before tax? -ROCE–((16250+1750)-5000 interest)/150000-50000 0r 95000+5000)*100%=13%

Also in the first example only nothing deducted from equity part when calculating due to not having any profit before tax?

Please I really need explanation?

(a) Calculate ratios for Harbin for the year ended 30 September 2007 equivalent to those calculated for the year ended 30 September 2006 (showing your workings). (8 marks)

(b) Assess the financial performance and position of Harbin for the year ended 30 September 2007 compared to the previous year. Your answer should refer to the information in the Chief Executive’s report and the impact of the purchase of the net assets of Fatima