MGT201 GDB no 01 Solution Spring 2017

MGT201 GDB No 1 Spring 2017

Here we have MGT201 - Financial Management GDB no 1 Solution Spring 2017. MGT201 GDB Last Date is Monday, May 08, 2017. 

MGT201 GDB no 01 Solution Spring 2017

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MGT201 GDB Topic:

Analysis of Financial Statements

MGT201 GDB Discussion Question:

Sehgal Manufacturers is facing an issue of managing its working capital needs, management is worried about financing of daily operations. Although sales of company have an increasing trend but still company is facing shortage of cash. Liquidity analysis of the company’s financial data showed that company has current ratio of 1.3:1 and management wants an improvement in the current ratio. Financial manager of the company has suggested following two alternatives:

• Acquiring short term loan of Rs. 100,000 at 12% annual interest rate
• Reducing current liabilities by paying off short-term debt of Rs. 200,000 using marketable securities (Ignore gain or loss on sale of marketable securities)

Following information has been extracted from the financial statements for the analysis:

Particulars	Rs.	Particulars	Rs.
Cash	200,000	Account payable	100,000
Fixed assets	1,500,000	Accruals	150,000
Inventory	150,000	Short term debt	250,000
Net Income	725,250	10-year Bonds	150,000
Account receivables	100,000	Marketable securities	200,000

You are required to discuss the impact of each alternative on current ratio (calculations of current ratio in both cases is mandatory as working carries marks) and suggest which option company should select to improve the current ratio without pushing up its liabilities? Provide reason to support your selection.

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MGT201 GDB IMPORTANT NOTE:

You are required to provide complete calculations along with formulas, otherwise marks will be deducted. Also avoid unnecessary details.

MGT201 GDB no 01 Solution Spring 2017

This is the idea solution for Mgt201 gdb no 1. MGT201 Gdb is very easy. am going to share some helping ideas hope rest you can do.

MGT201 GDB no 01 Solution Idea

Current ratio means only current assets and current liabilities so first of all exclude net income and 10 year bonds because of longer maturity time period these are not the part of the current liabilities. Sum up all the current assets and current liabilities and divide in each of the case, remember we have to choose the option without pushing up liabilities, and when we choose the first one by raising short term loan its mean we are increasing our liabilities, so in the simple way sehagal can improve current ratio by adopting the 2nd option.

MGT201 GDB no 01 Solution hints:

case (1)
Total C.A = 650,000 + 100,000 = 750,000

Toatal C.L = 500000 + 100,000 = 600,000

Current ratio = 750/600 = 1.25

Case (2)

Total C.A = 450,000

Total C.L = 300,000


Current ratio = 450/300 = 1.5

MGT201 GDB no 01 Solution:

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