ACC501 ASSIGNMENT 1 SOLUTION DUE DATE : 2 MAY 2013

ACC501 Assignment No 1 Solution Spring 2018

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ACC501 ASSIGNMENT No 1 SOLUTION 2013

Topic: Ratio Analysis, DUE DATE : 2 MAY 2013

Learning objectives:

After attempting this assignment, the student would be able to:

calculate and interpret different financial ratios.

understand how the decisions may affect liquidity position of a company.

Assignment Question:

ABC Company is engaged in manufacturing of electronic products since many years. It is listed at Regional Stock Exchange (RSE) and its shares are traded at Rs. 37 each currently. Capital structure of electronics industry is highly relying on debt. So, the industry average for debt to equity ratio is 60:40. Following financial statements relate to
ABC:

ABC Company
Balance Sheet
As on December 31, 2012

Additional information:

Management of the company is planning to take loan of Rs. 51 million from a local financial institution to purchase new plant for expansion in its existing plant.
A & N Company - a buyer of ABC Company has recently made an agreement to purchase electronic products for Rs. 20 million on credit basis. The inventory for this deal will cost Rs. 11 million for ABC Company.
Share price of the company will be increased by Rs. 3 owing to good expectations perceived by stock market investors.

Required:

1. Compute current ratio of ABC Company before and after the credit sales have been

made to A & N Co. (3+4=7 Marks)

2. Analyze how the liquidity position of ABC Company will be affected after making

credit sales to A&N Co. (3 Marks)

3. Calculate Debt-Equity Ratio of ABC Company before and after taking loan.

(3+4=7 Marks)

4. Comment on as how the change in Debt to Equity Ratio would affect the decision of

the financial institution if the company requests for a further loan. (3 Marks)

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REFERENCING GUIDELINES:

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understanding or visit

http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html

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