Answer all questions. Intended learning outcomes:
1. Evaluate the performance of a company using various financial analytical tools.
2. Analyse different patterns of cost behaviour and apply cost-volume-profit analysis to business decisions.
3. Select and apply investment appraisal techniques appropriately.
4. Evaluate the performance of business units using both financial and non-financial measures.
Q1. Assume that you are a Financial Analyst working for Middle East Venture Capital L.L.C. Evaluate the financial performance of a company listed in the Muscat Securities Market (MSM)/GCC Market by taking into consideration the following instructions.
Instructions:
- Select a company listed in Muscat Securities Market/GCC Market (preferably other than banking and investment companies or Holding companies).
- Collect financial reports of the chosen company for three consecutive years.
- Use annual financial statements for analysis. Avoid using quarterly statements.
- Provide references for the data collected (use Coventry Harvard style of referencing). Company websites can also be used for data collection.
- From the financial statements and additional information collected by you complete the below mentioned tasks.
TASKS
a. Prepare comparative income statements and balance sheet for 3 years using Horizontal and Vertical Analysis techniques for the both income statements and balance sheet.
b. On the basis of literature review and from the above computations analyse; Profitability position and Financial position of the chosen company.
(Literature Review: 10 marks; analysis: 20 marks (profitability position-10 marks & financial position-10 marks); Total 30 marks)
c. Compare and contrast Vertical analysis and Horizontal analysis techniques.
Q2. Mars Hypermarket LLC is planning to expand and open new stores in Sultanate of Oman. Currently they are considering two options, one is to start a new store in Barka and other is to take over an existing store in Ibra. But due to recent developments they will be able to fund only one store as the overall revenue trends are subdued. The required rate of return is 10%. Details of cash inflows of 5 years of the two projects along with additional information is given in the table below,
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Details
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New Store at Barka
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Take-over existing store at Ibra
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|
Suppliers availability
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Not available. To be initiated
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Already existing
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|
Consumer trends
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Growth expected at 10%
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Stagnated
|
|
Population growth
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12%
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5%
|
|
Competition
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Strong
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Moderate
|
|
Initial cost
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200,000
|
200,000
|
|
Cash flows
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|
Year 1
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60,000
|
20,000
|
|
Year 2
|
80,000
|
60,000
|
|
Year 3
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100,000
|
80,000
|
|
Year 4
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60,000
|
120,000
|
|
Year 5
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40,000
|
80,000
|
a. Evaluate the projects using, Net Present value Method and Internal Rate of Return method.
b. Based on the above analysis and on the basis of the relevant literature review, which project would you recommend and why. The students have to consider the non-financial information provided in the case and other relevant non-financial factors while recommending a project.
(Recommendation based on calculations (with Literature review) - 10 marks and discussion non- financial factors (with Literature review)
Q3. Your company, a leading cement manufacturer has asked you to submit a cost-volume-profit analysis report for the two products being produced in your company.
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Product A
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Product B
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|
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RO
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RO
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RO
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RO
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|
Sales
|
|
300,000
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Sales
|
|
300000
|
|
Less: Variable Cost
|
240000
|
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Less: Variable Cost
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200000
|
|
|
Fixed Cost
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30000
|
270000
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Fixed Cost
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70000
|
270000
|
|
Budgeted Profit
|
|
30000
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Budgeted Profit
|
|
30000
|
You are required to:
a. Calculate break - even point of each product.
b. The company prefers to maintain a desired profit of RO 10,000. Identify the sales volume to maintain the desired profit.
c. Compute margin of safety for both products.
d. The business is expected to go through ups and downs in the demand hence you need to state which product is likely to earn greater profit in conditions of heavy demand for the product and low demand for the product.
e. Evaluate the importance of the role of CVP analysis in taking business decisions with appropriate literature review.
(Calculations of BEP, Desired Profit and Margin of Safety; Discussion on which product is likely to earn higher profit; Role of CVP analysis)
Instructions to Students:
1. Work proposal should be submitted by week 5. The main task is identifying the company for doing the analysis and ensuring that the financial statements are available for three consecutive years.
2. The report should have table of contents and appendices if any.
3. Appropriate references using Harvard style of referencing and in-text citations are mandatory.
4. The report to follow font style Times New Roman, font size 12 and text color black.