Its an exam,

ACCOUNTING
    Serial Number
    Contents
    Page Number
    1.
    Question 1
    1-5
    2.
    Question 2
    6-10
    3.
    Referencing
    11
ANSWER TO QUESTION 1
Cochlear Limited is involved in the business of manufacturing and trading of hearing implants and other ancillary products in the same line. Da Gama Partners is one of the best financial analyst firms in Australia which in the following assignment is evaluating the financial ratio and the balance sheet analysis of the company and commenting on the financial stability of the company. The workings and analysis are mentioned below:
PART A
The various ratios are calculated for the company by the financial analyst for the year 2017, 2018, and 2019. The calculation of the same is shown below.
Financial Stability Ratios
These ratios are calculated for judging the financial position of the company.
· Equity Ratio = Total Equity
Total assets
    
    2017
    2018
    2019
    Total Equity $m (A)
    543.60
    610.80
    725.90
    Total Assets in $m (B)
    1,136.30
    1,156.90
    1,379.20
    Equity Ratio in $m (A/B)
    0.48
    0.53
    0.53
Liquidity Ratios:
These ratios are used to evaluate the liquidity position of the company:
· Current Ratio = Current Assets
Current Liabilities
    
    2017
    2018
    2019
    Total Current Assets $m (A)
    585.90
    584.20
    635.0
    Total Current Liabilities in $m (B)
    346.60
    287.70
    359.50
    Current Ratio in $m (A/B)
    1.69
    2.03
    1.77
· 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
Cash Sufficiency Ratios
These ratios are used for knowing the cash inflow and outflow in the company.
· Dividend Pay-out Ratio = Dividend paid
Cash flows from operating activities
     
    2017
    2018
    2019
    Dividend paid in $m (A)
    143.5
    161.1
    181.8
    Cash flows from operating activities in $m (B)
    259.8
    258.1
    296
    Dividend Pay-out Ratio (A/B)
    0.55
    0.62
    0.61
· Repayment of long-term borrowings Ratio = Repayment of long-term borrowing
Cash flow from operating activities
     
    2017
    2018
    2019
    Repayment of long-term borrowings in $m (A)
    193
    321.2
    405.6
    Cash flows from operating activities in $m (B)
    259.8
    258.1
    296
    Repayment of long-term borrowings ratio (A/B)
    0.74
    1.24
    1.37
· 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
· EQUITY RATIO: This ratio reflects the amount of assets that are contributed by the equity in a company. The capital structure of the company is made by the owners' fund and the outside fund and equity is the owners' fund. The ratio has increased from 2017 to 2018 which shows that the owners' fund has increased in the company.
· CURRENT RATIO: This ratio reflects the company’s ability to pay back the current liabilities using the current assets. This denotes the working capital structure of the company. The current ratio increased in 2018 as compared to 2017 which is a good sign showing that the company working capital has improved but the same went down to 1.77 in the year 2019.
· INVENTORY TURNOVER RATIO: This ratio reflects the comparison of the average inventory which forms part of the cost of sales in a company. If the same is higher it shows that inventory has been sold that many times. As the Inventory Turnover Ratio is decreasing in recent times, this is not a good sign.
· DIVIDEND PAYOUT RATIO: The dividend payout ratio reflects the part of the operating cash flows which is been used for the payment of the dividend to the shareholders. The payout is the amount of dividend that is been paid to the shareholders. This...