Answer To: It is an Accounting Exam, can you analyse all the reports and answer the questions.And I want surety...
Harshit answered on Jun 15 2021
ACCOUNTING
Serial Number
Contents
Page Number
1.
Question 1
1-7
2.
Question 2
8-12
3.
Referencing
13
2 | Page
QUESTION 1
Cochlear Limited, is an Australian Public Company that manufactures and sells hearing implants. Da Gama Partners, being a leading financial analyst gives a financial analysis of the company's financial position by analyzing and calculating various ratios. These are worked out as follows:
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
Current Ratio: A current ratio of 2:1 is considered ideal. This implies that current assets are 2 times more than the current liabilities. After calculating the current ratio of the company, we observe that only in 2018 the ratio is 2.03 i.e. current assets are 2.03 times of liabilities since the position of repaying debts is good. The current ratio is 1.69 and 1.77 for 2017 and 2019 respectively. This implies that the current ratio can be improved so that the ideal ratio of 2:1 is achieved.
Financial Stability Ratios
These ratios are calculated for judging the financial position of the company.
· Debt Ratio = Total liabilities
Total assets
2017
2018
2019
Total Liabilities $m (A)
592.70
546.10
653.30
Total assets in $m (B)
1,136.30
1,156.90
1,379.20
Debt Ratio in $m (A/B)
0.52
0.47
0.47
Debt Ratio: An ideal debt ratio of 0.40 is considered to be good as it signifies that the company can generate enough cash flows to repay its debt. The debt ratio of the company is 0.52, 0.47, and 0.47 respectively for 2017, 2018, and 2019. It indicates that the company has a higher debt ratio signifying that it may have difficulty in generating cash flows to repay its debts.
· 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
Times Interest Earned: Times Interest Earned ratio signifies that how many times the company's profit can pay the interest obligations of the company. The company has a good Times Interest earned ratio of 46.51, 44.18, and 82.4 for 2017, 2018, and 2019 respectively. Hence, the company can easily pay its interest obligations.
Earnings Ratio
· Gross Profit Margin = Gross Profit
Revenue
2017
2018
2019
Gross Profit in $m (A)
895.4
1,002.50
1,075.60
Revenue in $m (B)
1,253.80
1,363.70
1,426.70
Gross Profit Ratio (A/B)
0.71
0.74
0.75
Gross profit margin ratio: The Company has a gross profit margin ratio of 0.71, 0.74, 0.75 respectively for the year 2017, 2018, and 2019 respectively. It signifies that either the revenues are higher or the direct expenses are less. It is a good indication for the company. The cost of production is comparatively lower when compared with the revenue it generates.
· Profit Margin Ratio = Profit (after income tax)
Revenue
2017
2018
2019
Profit after tax in $m (A)
223.60
245.80
276.70
Revenue in $m (B)
1,253.80
1,363.70
1,426.70
Profit Margin Ratio (A/B)
0.18
0.18
0.19
Profit Margin Ratio: The profit margin ratio is 0.18 in the year 2017 and 2018 and 0.19 in the year 2019. This implies that the company has an average profit margin ratio. It means that the company can manage its cost but there is scope for reduction in cost so that the ratio can be improved further.
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...