Problem:
A2Z Maritime is a ship-owning company that had some long term contracts that include land transport delivery, but these seem to be declining. However, there are several time charters that appear to be secure for long term. You have been asked to do some work for this company and feel that its financial position could be an issue. The outlook seems to be growth in trade and a modest increase in chartering rates. You have taken the comparative figures over the last three years of the company's profit and loss and balance sheets and penciled in some percentages (see table below).
|
A2z maritime summary of trading results For Year Ended 31 March
|
|
|
2003
|
2004
|
2005
|
|
|
$m
|
%
|
$m
|
%
|
$m
|
%
|
|
Total Chartering Revenue
Other Revenue
TOTAL REVENUE
|
127
|
91
|
130.1
|
95
|
141.1
|
97
|
|
12
|
9
|
7
|
5
|
4.7
|
3
|
|
139
|
100
|
- 1
|
100
|
- 8
|
100
|
|
Ship Operating Costs
Shore Operating Costs
TOTAL OPERATING COSTS
|
82.2
|
59
|
80.9
|
59
|
90.1
|
61
|
|
37.8
|
27
|
38
|
28
|
39.6
|
27
|
|
120
|
86
|
- 9
|
87
|
- 7
|
88
|
|
Gross Profit
Selling &Administration
Net operating Profit
|
19
|
14
|
18.2
|
13
|
16.1
|
12
|
|
8
|
6
|
9
|
7
|
9.4
|
7
|
|
11
|
8
|
- 2
|
6
|
- 7
|
5
|
|
Bank Loan
Sundry Creditors/payables
Accrued Expenses
Current Liabilities
|
10.7
|
16
|
9.6
|
13
|
14.1
|
16
|
|
14.2
|
22
|
17.7
|
24
|
22.3
|
25
|
|
1.4
|
2
|
1.5
|
2
|
1.7
|
2
|
- 3
|
40
|
- 8
|
39
|
- 1
|
43
|
|
Mortgage on Ships
Five-year loan at 5% per annum
Long term Liabilities
|
10
|
15
|
10
|
14
|
10
|
11
|
|
|
|
|
|
2.5
|
3
|
|
10
|
15
|
10
|
14
|
- 5
|
14
|
|
Proprietorship /Owner's Equity
|
29.9
|
45
|
35.2
|
47
|
37.8
|
43
|
|
Total Funds Employed
|
66.2
|
100
|
74
|
100
|
88.4
|
100
|
|
Sundry Debtors(net)Receivables
Inventories/stock
Current Assets
|
18.2
|
28
|
17.7
|
24
|
23.6
|
27
|
|
14.6
|
22
|
15
|
20
|
17.1
|
19
|
- 8
|
50
|
- 7
|
44
|
- 7
|
46
|
|
Office Equipment
Land Transport
Ships
Fixed Assets
|
3.4
|
5
|
3
|
4
|
7.6
|
9
|
|
5.5
|
8
|
11.9
|
16
|
9.9
|
11
|
|
19.6
|
30
|
19.4
|
26
|
19.2
|
22
|
- 5
|
43
|
- 8
|
46
|
- 7
|
42
|
|
Intangible Assets/Long term Contracts
|
4.9
|
7
|
7
|
10
|
11
|
12
|
|
Total Funds Employed
|
- 2
|
100
|
74
|
100
|
- 4
|
100
|
- Calculate from above table the following ratios to the nearest per cent to illustrate trends:
- Indicate the questions that you would like to ask the company>List three points that you feel it would be prudent to discuss, giving your reasons.
- If you were a director on the board, what questions would you be asking the finance department and why?
- Ratio of net profit to equity (Return on Owner's capital)
- Working Capital Ratio (Current Ratio)
- Liquidity Ratio (Acid Test)
- Debt/Equity Ratio
- Breakeven Point% sales
- Rate of Collection of Debtors.
Summary of Problem:
This question is basically belongs to the Finance as well as it explains about computing working capital ratio, liquidity ratio and other ratios from given information.