UNIVERSITI TUNKU ABDUL RAHMAN
ACADEMIC YEAR 2019/2020
JANUARY 2020 TRIMESTER
UBFBF3083/UBFF3783 FINANCIAL STATEMENT ANALYSIS
DATE & TIME OF DOWNLOAD: 12 NOON, SUNDAY, 3 TH MAY 2020
DATE & TIME OF SUBMISSION: 12 NOON, FRIDAY, 8 TH MAY 2020
DURATION: 5 DAYS
BACHELOR OF BUSINESS ADMINISTRATION (HONS) BANKING AND FINANCE BACHELOR OF ECONOMICS (HONS) FINANCIAL ECONOMICS BACHELOR OF FINANCE (HONS)
Instructions to Students:
1. This Final Assessment (FA) is an Individual, this assessment which consists of of ONE (1) question. Question ONE (1) carries ONE HUNDRED (100) marks.
2. You are required to answer [ALL] questions, and submit the ANSWER SCRIPT by 12:00 Noon, 8th MAY 2020.
3. During the period of 5 Days of this FA, the examiner(s) can be reached at
(a). [Microsoft Teams: UTAR-fsa jan 2020 or team code: 2x8sjrm], or (b). Email:[email@example.com]
You may use the above e-platform(s) to check with the examiner(s) if you need any clarification on this FA question paper.
4. You may refer to any books, lecture notes, published materials, online resources etc. when answering the questions. Proper referencing is necessary to avoid plagiarism. However, Copy-and-Paste, Consultation, Discussion and Sharing of Answers are STRICTLY PROHIBITED in this FA.
Answer Script File
5. The answer script MUST be a Microsoft Word file, [Compulsory for text-based submission to enable Turnitin Plagiarism Check; opt for PDF] in A4 size format. Note: Please keep the file size NOT exceeding 30MB.
6. Please check you Index Number generated by the Division of Examinations, Awards, and Scholarships (DEAS). You MUST name your answer script file using the following file name for submission:
[Course Code]_FA_[Programme Abbreviation]_[Your Index Number]
For example, if you are from the degree programme IB, and your Index Number is A01234CBIBF, then your answer script should be named as
UCXY3133_ FA_ IB_A01234CBIBF.doc
Answer Script File Submission
7. Your answer script file has to be submitted to [WBLE as main alternative; or designated UTAR email in case any problem with the WBLE submission]of the following platforms before the due time/date.
(a). Attach your answer script at WBLE (primary)
Note: Please use the file name for your submission, i.e,,
[Course Code]_FA_[Programme Abbreviation]_[Your Index Number]
(b). Send your answer script to the following Email Account (secondary) according to your programme:
i. FN students please send your answer script to:
ii. FE students please send your answer script to:
iii. BA students please send your answer script to:
[ UBFF3083.FBF@utar.edu.my ]
Note: For the title of your email, please use the file name of your answer script, i.e.,
UCXY3133_FA_[Programme Abbreviation]_[Your Index Number]
8. Please make sure that you submit the same copy of answer script file to the above platform(s). When multiple answer script files are received, the examiner will randomly choose one for marking.
9. The answer script submitted after the due time and date may incur a late penalty as shown below (for example):
• 1 hour: 10% mark deduction from the overall marks gained in the submitted FA
• 1-6 hours: 20% deduction
• 6-12 hours: 30% deduction
• 12-24 hours: 50% deduction
• 24 hours or no submission after 24 hours: 0 mark
Contents of Answer Script
10. The first page of your submission is the Final Assessment Cover Page. You MUST use the template given below and fill up the following information
• Your Programme (Abbreviation)
• Your Index Number
• Your Name
• Your Student ID
11. The second page of your submission is the Final Assessment Declaration Statement. You MUST use the template given in Appendix 2, and type on this form to indicate your authenticity of submitted work without plagiarism.
12. Each question should be answered starting on a new page. The assignment shall not exceed 2,000 words (EXCLUDING cover page, declaration form, list of references and appendices). All pages in the written report should be numbered.
13. In your answer script, all texts MUST be typed using Times New Roman characters with font size 12.
14. Please include a page number on each and every page of your answer script. Ensure that each page of answer scripts in sequence prior to online submission.
WARNING OF PLAGIARISM
15. All answer scripts will be uploaded by the examiners to Turnitin for similarity check. In the case of plagiarism being suspected, the evidences will be submitted to the University Examination Disciplinary Committee for further investigation and trial. Disciplinary action will be taken against any candidate who is found plagiarized in the answer submitted. Hence, candidates are advised to comply strictly with the University Examination Rules and Regulations and any other guideline/policy relating to University examinations.
INDIVIDUAL REFLECTIVE ASSIGNMENT / ESSAY (QUESTIONS)
Individual student is required to write a reflective essay or “self-reflect” to demonstrate student knowledge, experience, development and lessons learned in Financial Statement Analysis. In this reflective assignment/essay, student need to reflect on specific personal experiences, transformative moments and/or their intellectual growth from completing the course.
QUESTION ONE [Total: 100 marks]
CASE STUDY BIBI JAKEL BHD (Formerly Komdar Bhd )
Aiden had been employed by Komdar Bhd for nearly 20 years, serving in a variety of engineering and manufacturing positions for the company. The company owner decided to put the company up for sale, and Aiden was eager to buy it, since he knew he could do a better job of managing and running it than was presently being done. There was potential for additional sales; and cost savings through production efficiencies, superior customer service, and reduced administrative expenses (the owner was quite generous to himself) would be easy to accomplish. Aiden had no doubt that he could improve things dramatically within a year, and growth possibilities after the first year were extremely attractive.
Aiden did not have strong financial skills, but he knew that he had to put together some kind of projected figures to set goals for the company and to satisfy his financial backers, who were members of his family and also not financially sophisticated. Exhibit A.1 shows the income statement projections that Aiden prepared.
Based on this projection, which he felt was realistic, Aiden did not do any further financial studies, nor did his financial supporters request any more data. Their feeling was that the combination of the sales growth and the attractive improvement in profitability would be enough to avoid any financial difficulties. Unfortunately, these projections proved insufficient. Aiden did not take into consideration three significant factors: (1) He would have to invest in excess of RM500,000 in plant and equipment to gain all the efficiencies and throughput expansion he required; (2) to gain the new customers required to achieve the sales target, he would have to extend 30-day credit terms to all customers; and (3) it would take time to ramp up to RM300,000 monthly sales necessary to attain the RM360,000 target figure.
As Komdar Bhd, the company enjoyed a unique position demand for its products exceeded ability to supply. The company was able to sell all of its monthly production of about RM1,000,000 on a continuing basis. Komdar Bhd required cash payment at time of delivery to virtually all customers, and was still able to sell 100 percent of its output. Aiden, however, wanted to increase sales and net profits and recognized the existence of increased competition and other changes in the marketplace. He not only saw the need to retain present customers but also to acquire new customers. To accomplish his goals, he knew he would have to offer credit terms for payment and would have to absorb the cost of carrying the significant increase in accounts receivable investment.
Aiden was fully aware of the plant and equipment investment and the accounts receivable factors, but he did not understand the cash flow ramifications they would have on his fledgling business. He simply assumed the profit generated from the new sales would produce enough cash to cover any requirements he would face. He had not taken the ramping factor into consideration at all. If he had done a balance sheet projection, even without taking the ramping into account, the pro forma balance sheet figures in Exhibit A.2 would have appeared, allowing him to plan for the cash shortage contingency.
From the pro forma balance sheet, it is clear that Aiden could have anticipated a significant problem with cash. Without that projection, however, Aiden only discovered the problem once in the middle of it.
Fortunately, because some of his relatives were willing to guarantee Aiden’s loan, he was able to get a RM300,000 line of credit from his bank and to increase his long-term loan by RM100,000. To complete the picture of his first year of operation, in Exhibit A.3 Bibi Jakel’s actual financial results are shown compared to the projected figures and to the prior year numbers. Part of Aiden’s problem (and the solution to his critical needs) was borrowing. At January 1, 2021, assumed a loan of just over RM1,000,000 with a monthly payment of RM16,000 including interest at 8,5 percent. He added RM100,000 to the loan on April 1, 2021, which increased the monthly payment to RM25,000 but did not change the interest rate. He also negotiated a RM1,500,000 line of credit at a rate of 9 percent. The actual cash flow and forecasted are shown in Exhibit
From these figures, it is clear that Aiden made good progress towards achieving his goals. During the year, however, his cash flow difficulties forced him to defer the purchase of certain equipment that he needed, and the impact on future years may be severe. He did a good job controlling expenses and inventory, but his accounts receivable went through the roof. As a result, he is now dealing with a significant line of credit (and related interest charges). He has financed the rest of his requirements partly from the profits he was able to attain and from the addition to his bank loan, but also by not paying his vendors on time. His accounts payable balance has increased dramatically, and is now about 85 percent higher than it should be.
Aiden’s phone is surely ringing off the hook with angry and frustrated vendors who are looking for payment. Additionally the bank is pressuring him, insisting that he zero out the line of credit for at least one month before they will consider another year’s extension. Because of his cash flow problems, Aiden smart quickly. He decided he needs a reliable cash flow projection for next year, particularly since he wants to catch up on his fixed asset expenditures as well as make additional investments.
The preparation of this kind of a forecast is not difficult once the basic assumptions and estimates are developed. The picture such a forecast provides the management of the organization is invaluable. The prospect of an excess amount of cash is an opportunity that should be used to the fullest advantage, while a cash shortfall needs to be recognized early and handled wisely to minimize the cost to the organization and to avoid the disaster of not being able to pay off obligations. Either way, typical income statement projections and pro forma balance sheets are not enough. Cash is the ultimate determinant of survival, success, or failure. *****Please find Exhibit A1-A4 in the Appendixes Requirement:
a) Describe the business environment relevant to the case study by examine the nature business of the company and its competitors. Also, evaluating the market and customer base of the company above.
b) Compare cash flows from operating, investing, and financing activities from the company above. Furthermore, by considering the operating, investing and financing issues from the company, develop a residual income model to evaluate the company stock value. (Note: Student needs to justify such the cost of equity, growth rate themselves by appropriate and reasonable assumptions.) (20 marks)
c) You are a financial analyst for Bibi Jakel Bhd, explain what the potential earnings management activities were for this company. Justify your answer by providing appropriate reasons base on the company current business model, financial data and other evidences or any reasonable assumptions.
d) Besides cash flow analysis, the other financial statement analysis also vital and important for the company. Write a review based on THREE (3) journal articles from year 2013 onwards related to ONE (1) of the topics below.
(i) Equity and credit analysis
(ii) Business and geographical segment analysis
(iii) Common size analysis
(iv) Business combination and Special Purpose Entity
Remarks: Choose one topic above and the review should analyse each aspect of the article individually then conclude the review by analysing the article as a whole. Always start with an introduction that explains who the author then, mention the title of the article and provide brief explanation of what the article is about and why it's important. (40 marks) APPENDIXES
Bibi Jakel Bhd and Komdar Bhd
Income statement for the years ending 31 December 2020 & 2021
Komdar Bhd(actual) Bibi Jakel (projected)
RM'000 % RM'000 %
Sales 2,400.5 100 3,600 100
Cost of goods sold 1,687.2 70.3 2,380 66.1
29.7 1,220 33.9
Selling & general expenses 494.9 20.6 500 13.9
Operating profit 218.4 9.1 720 20
Taxes 79 3.3 260 7.2
Net Income 139.4 5.8 460 12.8
Exhibit A.1: Income statements actual and projected
Bibi Jakel Bhd
Pro Forma Balance Sheets as at 31 December 2020
ASSETS RM'000 %
Cash -185 -12.2
Account Receivable 375 24.8
Inventory 480 31.8
Total Current assets 670 44.4
Others assets 840 55.6
TOTAL ASSETS 1,510 100
Accounts payable & Accruals
Other current liabilities 80 5.3
Total current liabilities 330 21.9
Other liabilities 180 11.9
Total stockholder equity
TOTAL LIABILITIES AND EQUITY
Exhibit A.2. Pro Forma Balance Sheets
Income statement for the year ending
Bibi Jakel Bhd Bibi Jakel Bhd Komdar Bhd
31/12/2020 31/12/2021 31/12/2020
Actual Projected Actual
RM'000 % RM'000 % RM'000 %
Sales 3,014.7 100 3,600 100 2,400.5 100
Cost of goods sold 2,058.1 68.3 2,380 66.1 1,687.2 70.3
Gross Profit 956.6 31.7 1,220 33.9 713.3 29.7
Selling & general
expenses 463.4 15.4 477.6 13.3 473.9 19.7
32.6 1.1 22.4 0.6 21.0 0.9
15.2 720 20 218.4 9.1
Taxes 182.4 6 260 7.2 79 3.3
Net Profit 278.2
Exhibit A.3. Income Statement actual and projected
Bibi Jakel Bhd
Cash Flows for the year
Net cash flow from operating activities 195 155
Net cash flow from Investing activities -145 -30
Net cash flow from financing -65 -35
Beginning cash and cash equivalent 1,665 1,650
Ending cash and cash equivalent
Exhibit A.4. Cash Flow statements actual and projected
EXCELLENT GOOD NEED IMPROVEMENT UNACCEPTABLE
(20m) Well-developed introduction engages the reader and creates interest. Provide full/complete company information. Essay clearly states a significant and compelling position.
16m-20 m Introduction creates interest. Adequate company information and essay clearly states the position.
11-15 m Introduction adequately explains the background, but may lack detail. Essay states the position.
6 – 10 m Background details are a random collection of information, unclear, or not related to the topic. Moderate company information and essay is vague or unclear.
Key issues or problems
(20m) Well-developed main points directly related to the topic. Supporting examples are concrete and detailed. Ability to think critically is clearly demonstrated in the analysis, synthesis and evaluation.
16m - 20 m Three or more main points are related to the topic, but one may lack details. Ability to think critically is fairly demonstrated in the analysis, synthesis and evaluation.
11m - 15 m Three or more main points are present. Review made beyond the analysis, synthesis and
6m - 10 m Less than three main points, and poor development of ideas. A basic grasp of subject matter is demonstrated.
0 -5 m
(20m) Writing shows high degree of attention to logic and reasoning of points. Brilliant ideas/decision making Summary is precise, wellarticulated analysis of the co.
16m-20 m Writing is coherent and logically organized with transitions used between ideas and paragraphs to create coherence.
Overall unity of ideas is present.
11m – 15m Writing is coherent and logically organized. Some points remain misplaced and stray from the topic.
fairly-developed and also demonstrates inadequate
6m – 10 m Writing lacks logical organization.it shows lack of competent
issues or arguments
(40m) Excellent in providing the introduction and review. Format and references/citation are wellconstructed.
31m-40 m Good in introduction but weak in justification Very few fragments or run-ons. Format and references/cite has few errors.
21m – 30 m Most spelling, punctuation, and grammar correct allowing reader to progress though essay. Some errors remain. Format and references/citation has some errors.
11m – 20 m Irrelevant and poor in explaining. Format and references /citation has serious errors.
UNIVERSITI TUNKU ABDUL RAHMAN
ACADEMIC YEAR 2019/2020 JANUARY 2020 TRIMESTER
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