accounting final exam

ACCOUNTING
    Serial Number
    Contents
    Page Number
    1.
    Question 1
    1-4
    2.
    Question 2
    5-8
    3.
    Referencing
    9
QUESTION 1
PART A
RATIO ANALYSIS
1. Capitalisation Ratio = Total assets
Total Equity
    
    2017
    2018
    2019
    Total assets $m (A)
    1,136.30
    1,156.90
    1,379.20
    Total equity in $m (B)
    543.60
    610.80
    725.90
     Capitalization Ratio in $m (A/B)
    2.09
    1.89
    1.90
    Capitalization ratio analyses the equity of a company in terms of total assets as owned by the company. It measures the proportion of equity which is the part of the investment by the owners of the company in terms of the total assets of the company. The ratio is decreasing over the year as the equity investment has been increasing at a greater rate than the increase in the value of the total assets ( Wen, H., & Zhu, T. (2019))
2. Debt Coverage Ratio = Non-Current Liabilities
Cash flow from operating activities
    
    2017
    2018
    2019
    Non-Current Liabilities in $m (A)
    246.10
    258.40
    293.80
    Cash flows from operating activities in $m (B)
    259.80
    258.10
    296.0
    Debt Coverage Ratio (A/B)
    0.94
    1.01
    0.99
    This ratio reflects the proportion of the operating activities cash flow to the non-current liabilities and how much cash flows as generated during the year can be used for the payment of the non-current liabilities by the company. This shows how the cash flows can cover the debts of the company. The rising trend in this ratio is a good sign for the company and its performance.
3. Inventory Turnover Ratio = Cost of sales
Average Inventory
Where, Average Inventory = Opening Inventory + Closing Inventory
2
     
    2017
    2018
    2019
    Cost of sales $m (A)
    358.4
    361.2
    351.1
    Average Inventory in $m (B)
    160+160
2
=160
    167.4+160
2
163.7
    167.4 + 195.4
2
= 181.40
    
    
    
    
    Inventory Turnover Ratio in $m (A/B)
    2.24
    2.21
    1.94
This ratio shows how many times the inventory of the company has rotated during the year based on the cost of sales as incurred by the company. This reflects the number of times that an organization sells its stock. The falling trend is not a good performance sign for this ratio.
4. Times Interest Earned= Profit before taxes + Finance cost expensed
Net finance costs
    
    2017
    2018
    2019
    Profit before taxes in $m
    308.8
    340.5
    365.6
    Finance Cost Expensed in $m
    7.5
    8.5
    5.2
    Total in $m (A)
    316.3
    349.0
    370.8
    Net finance cost in $m (B)
    6.8
    7.9
    4.5
    Times Interest Earned A/B
    46.51
    44.18
    82.4
    This ratio reflects the number of times that the company can generate the profits of the interest that the company has to pay for the financing of the debts of the company. The higher the ratio, the better is the performance of the company. As we can see the ratio has improved in the year 2019, the company has reduced its interest cost and therefore has become less risky.
5. Asset Turnover Ratio = Revenue
Average total assets
Where Average assets = Opening + Closing
2
    
    2017
    2018
    2019
    Profit before taxes in $m (A)
    308.8
    340.5
    365.6
    Average assets in $m (B)
    1,136.30
    1,146.60
    1,268.05
    Assets Turnover Ratio(A/B)
    0.27
    0.30
    0.28
    This ratio measures the revenue that the company can earn with the total assets as available with the company. The higher the ratio reflects better performance. In the case of the company, as the ratio has decreased,...