October University for Modern Sciences & Arts

Problem solving 1
Faculty Management Sciences

Department Finance and Investment Management Department

Module Code FIN201

Module Title Financial Management I

Semester Fall 2024

Time Allowed 50 minutes

Total Mark 100

Material provided None

Equipment permitted Calculator

Title: Financial Ratio Analysis and Interpretation Assignment

Assignment Overview:

Prepare a comprehensive financial analysis for the provided financial statements of Company
XYZ. You are required to calculate key financial ratios and interpret their implications in terms
of profitability, liquidity, debt management, and operational efficiency. Your report should be
structured as a problem set and submitted in word or Excel format.

Financial Statements:

 Balance Sheet
 Income Statement

Income Statement
FOR THE YEARS ENDED DECEMBER 31
2022 2023

Sales revenue 500,000 700,000

Cost of goods sold 220,000 320,000

Gross profit 280,000 380,000

Operating expenses:

selling expense 100,000 100,000

Depreciation expense
20,000 40,000

Total operating expense 120,000 140,000

Operating profit (EBIT) 160,000 240,000

Interest expense 50,000 40,000

Net profits before taxes (EBT) 110,000 200,000

Taxes (rate 20% from EBT) 22,000 40,000

Net profits after taxes (NET INCOME) 88,000 160,000

Preferred stock dividends 10,000 10,000

Earnings available for common stockholders 78,000 150,000

  Company’s purchases equaled 50% of its cost of goods sold in 2022 ,2023.
 NUMBERS OF SHARES OUTSTANDING (Year2022&Year2023)= 100,000.

Balance Sheet
FOR THE YEARS ENDED DECEMBER 31
ASSETS 2022 2023
Cash 60,000 80,000
Accounts Receivable 80,000 90,000
Inventories 100,000 150,000
Total current assets 240,000 320,000
Property, Plant & Equipment 665,000 682,000
Less: Accumulated depreciation 50,000 60,000
Total fixed assets 615,000 622,000
Total assets 855,000 942,000

Liabilities and Equity

Accounts Payable 65,000 70,000
Notes payable 72,000 81,000
Short-term Debt 78,000 90,000
Total Current Liabilities 215,000 241,000
Long-term Debt (NCL) 250,000 300,000
Total Liabilities 465,000 541,000
preferred stock 200,000 210,000
common stock 190,000 191,000
Total Equity 390,000 401,000
Total Liabilities and Equity 855,000 942,000

Assignment Structure:

1. Ratio Calculations (60 Marks): Calculate the following ratios:

 Liquidity Ratios:
1. Current Ratio
2. Quick Ratio
 Efficiency (Activity) Ratios:
1. Receivable Days
2. Payable Days
3. Asset Turnover
4. Inventory Turnover
5. Days of Inventory
 Profitability Ratios:
 1. Return on Assets (ROA)
2. Return on Equity (ROE)
3. Gross Profit Margin
4. Net Profit Margin
5. Operating Profit Margin
6. Earnings Per Share (EPS)
 Debt Ratios:
1. Debt Ratio
2. Times Interest Earned
Each calculated ratio will be awarded marks out of a total of 60, distributed evenly
across all ratios.
2. Ratio Interpretation (40 Marks): Discuss the implications of your calculations. Provide a
detailed interpretation of the ratios focusing on the company's profitability, liquidity,
debt management, and operational efficiency.
Allocate your analysis evenly to address each type of ratio, ensuring a balanced and
thorough insight into each aspect.

Total Marks: 100

 Ratio Calculation: 60 Marks

 Ratio Interpretation: 40 Marks

Instructions for Submission:

 Ensure your calculations are clear and accurate.

 Your interpretations should offer insight into what these ratios indicate about the
company's financial health and strategic position.
 Your report should be formatted neatly, with clear headings for each section.
 Submit your work in PDF format.
 Criteria Sub-Criteria Marks Allocation Total Marks
1. Ratio Calculations Liquidity Ratios: 60
- Current Ratio 5
- Quick Ratio 5
Efficiency (Activity) Ratios: - Receivable Days 5
- Payable Days 5
- Asset Turnover 5
- Inventory Turnover 5
- Days of Inventory 5
Profitability Ratios: - Return on Assets (ROA) 5
- Return on Equity (ROE) 5
- Gross Profit Margin 5
- Net Profit Margin 5
- Operating Profit Margin 5
- Earnings Per Share (EPS) 5
Debt Ratios: - Debt Ratio 5
- Times Interest Earned 5
2. Ratio Interpretation Liquidity Ratio Interpretation 10 40
Efficiency Ratio Interpretation 10
Profitability Ratio Interpretation 10
Debt Ratio Interpretation 10
Total Marks 100
 Rubric
Grade Fail Fair Good Very Good
Range of Marks 0-49 50-60 61-75 76-84
- Numerous inaccuracies - Calculation of ratios - Ratios are correctly - Most ratios are - All r
or missing calculations in contains several errors calculated with some accurately calculated; calcu
the ratios.- or misunderstandings.- errors or omissions.- minor errors may exist.- prese
Interpretations are either Interpretations are too Basic interpretation of Interpretations are insig
missing, incorrect, or basic or somewhat ratios provided, clear and provide good each
demonstrate a significant irrelevant, showing a offering a satisfactory insight into financial dem
misunderstanding of rudimentary overview of financial health but may lack unde
financial principles.- understanding of the status.- Some parts of depth compared to the impli
Criteria Report is poorly company's financials.- the analysis or Excellent category.- prese
organized, lacking clarity Presentation and presentation may lack Presentation is well- with
and professional structure of the report clarity or depth.- organized with minor struc
formatting.- Fails to meet are adequate but lack Generally follows scope for basic
basic requirements of the organization.- Meets the assignment guidelines improvement.- prov
assignment, showing little minimum requirements but lacks details in Demonstrates strong recom
to no understanding or but lacks thoroughness interpretation or understanding with deep
effort in analyzing the and clarity in analysis strategic insight. some advanced
financial statements. and explanation. analysis.