Reference no: EM132469426
You are interested to invest in Bestari Sdn. Bhd. You are given the following financial statements and relevant historical data of the company to help you in your analysis.
Statement of profit or loss for the year ended 31 December 2018
Net sales RM
Cash 4,880,000
Credit 10,120,000
Total net sales 15,000,000
Cost of goods sold (7,850,000)
Gross profit 7,150,000
Operating expenses (4,850,000)
Profit before interest and tax 2,300,000
Finance cost (500,000)
Profit before tax 1,800,000
Income tax expense (700,000)
Profit for the year 1,100,000
Statement of changes of equity for the year ended 31 December 2018
Share Capital Revaluation Reserve Retained Earnings
Balance 1 Jan. 2018 800,000 1,140,000 500,000
Profit for the year 1,100,000
1,600,000
Dividends (70,000)
Balance 31 Dec. 2018 800,000 1,140,000 1,530,000
Statement of financial position as at 31 December 2018
Property, plant and equipment, net 4,000,000
Inventory 1,080,000
Account Receivable, net 2,300,000
Short-term investments 60,000
Cash 260,000
Total assets 7,700,000
Liabilities and Equities
Share Capital 800,000
Revaluation Reserve 1,140,000
Retained Earnings 1,530,000
3,470,000
Long-term Loan 2,330,000
Current Liabilities 1,900,000
Total equity and liabilities 7,700,000
The market price per share as at 31 December 2018 was RM10.40
You have obtained the prior 2 years financial ratios of Bestari Sdn. Bhd and the industry average to be used in your analysis. The information is presented as follows.
Types of ratios 2016 2017 2018
Industry average for 2018
i. Current ratio 2.24 1.5
ii. Acid-test ratio 1.35 0.75 1.26
iii. Average Days in inventory 38 days 83 days 72 days
iv. Account receivable turnover 6.5 3.4 3.6
v. Debt ratio 0.48 0.48 0.52
vi. Times interest earned 7.3 2.3 5.7
vii. Profit margin 0.014 0.05 0.12
viii. Return on equity 0.39 0.14 0.38
ix. Earnings per share 4.8 1.8 3.9
x. Dividend yield 0.024 0.01 0.06
Required:
qUESTION (a) Compute the stated ratios above for year 2018 (round answer to 2 decimal places).
qUESTION (b) Based on your analysis, should you invest in Bestari Sdn. Bhd.? Support your answer with reference to your workings in (a) abovE.