answer all the questions by showing how they where calculated.
Microsoft Word - Final exam statement (Classique) Finance MGE 2 -2- Final Exam PART 1 (10 MARKS) SHORT EXERCICES Exercise 1. (1 point) A firm has a net income of 200, an increase in accounts receivables of 30, depreciation of 55 and a decrease in accounts payable of 25. Compute the operating cash flow. ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Exercise 2. (2 points) Besson Limited, a manufacturing company, had the following income statement information: 2016 2017 Revenue (net sales) € 5,000,000 4,800,000 Cost of goods sold € 3,000,000 2,800,000 Other operating expenses € 500,000 300,000 Interest expense € 100,000 80,000 Tax expense € 120,000 120,000 Calculate the Besson’s gross profit margin and the Besson’s net profit margin both in the years 2016 and 2017. Briefly describe the evolution of these margins over the period 2016 to 2017. ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Finance MGE 2 -3- Final Exam ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Exercise 3. (2 points) A financial analyst gathers the following information about two companies for the year ending 31 December 2017: Company A Company B Dividend yield 37.5% 40.0% Return on Capital Employed 12% 10.0% Financial leverage 1.6 2.0 a) Which of the above ratios best describe the companies’ profitability ? ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- b) Which information is missing to compute the Return on Equity ? ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Finance MGE 2 -4- Final Exam Exercise 4 (5 points) Compagnie des Alpes is a French company created in 1989 that operates many ski resorts and waterparks (Walibi) in Europe. Investment spending has increased in 2017 in an effort to renew and extend concession contracts, secure snow and improve customer satisfaction. Working capital for Compagnie des Alpes over the last 3 years (at 31 December) was as follows: The income statement includes the following data: NB: VAT rate is 20% and applies throughout the period 2015-2017. Question 1. (3 points) Calculate the three commonly used turnover ratios for working capital (using an annual base of 360 days) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- In € million 2015 2016 2017 Inventory 29,4 28,8 30,5 Receivables 81,2 106,0 112,8 Payables 6,1 7,3 9,2 In € million 2015 2016 2017 Revenues - net sale (excl. VAT) 695.9 720.2 762.2 Purchases (excl. VAT) 79.5 83.5 88.2 Finance MGE 2 -5- Final Exam ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Question 2. (2 points) Comment the evolutions of these ratios in relation to the growth of sales experienced by Compagnie des Alpes. ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Finance MGE 2 -6- Final Exam PART 2. (10 POINTS) SwissAir is a low cost airline carrier that provides cheap ‘no-frills’ flights to a wide range of European destinations. Some of the key business highlights were as follows: - 45 new routes and 6 new destinations were launched, expanding the network to 110 routes and 30 airports in 11 countries. - The fleet grew to 72 aircraft with an average of 5.2 years in 2016, making it one of the most modern and environmentally friendly fleets in Europe. - The number of ticket sold rose by 11.5 per cent to 33,055,102 tickets in 2016 (28,407,135 in 2015). - The average ticket price (excluded taxes paid to airports) increased by 5.9 per cent in 2016 for an amount of £49 per seat, driven by strong summer trading. This average ticket price includes extra passenger revenues (sales of drinks and perfumes) and is £0.90 per seat both in 2015 and in 2016. - Operating fixed costs (excluding fuel) fell by 1 per cent per seat from £28.78 to £28.49. - Variable fuel costs increased by 33 per cent to £1.48 per seat in 2016. - Earnings before tax (EBT) of £89 million is up 45% from £61 million in 2015. - The company is subjected to income tax rate of 20% for the years 2015 and 2016 The table below shows some important financial information for Swiss Air that is extracted from the income statement and balance sheet. £m 2016 2015 Revenues 1 619.70 1 314.40 EBIT* 117.8 88.2 Capital employed** 1 614.60 1 215.30 Net assets 982.90 863.40 Current assets 670.20 600.90 Current liabilities 409 314.50 Shareholder’s Equity 900 750 Net (financial) Debt 372 297.6 * Earnings before interest (financial expenses) and tax. ** Long-term capital employed (equity + non-current liabilities) Finance MGE 2 -7- Final Exam Question 1. (2 points) A financial analyst of Merrill Lynch finds that the financial leverage for Swiss Air is 39.7% in 2015. Calculate the financial leverage ratio for the year 2016 using the above key financial highlights and briefly comment its evolution. ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Question 2. (1,5 point) State two possible methods that you could implement to assess the profitability of Swiss Air from the perspective of shareholders. Explain how you can use them adequately in order to interpret the evolution of Swiss Air’s profitability. ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Finance MGE 2 -8- Final Exam Question 3. (2 points) Compute the Operating and Financial Breakeven point for the years 2015 and 2016. Comment the evolution of the obtained figures. Finance MGE 2 -9- Final Exam Question 4. (1,5 point) Calculate the following financial ratios for the year 2016 : a) Net profit margin b) Current ratio c) Return on capital employed (ROCE) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Finance MGE 2 -10- Final Exam Question 5. (3 points) The financial analyst of Merrill Lynch also provides you the following ratios that he calculated for the year 2015 for Swiss Air : - Net profit margin = 3.7 per cent - Current ratio = 1.91 - Return on equity (ROE) = 6.5 per cent On the basis of these information and the ratios that you have obtained in Question 4, answer the two following questions : a) To what extent do the results found for the period 2015-2016 support the view that “Swiss Air has committed to grow from strength to strength” ? ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- b) Which information that are not yet provided would be relevant to assess the financial risks borne by Swiss Air and its solvency? ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------