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From: bc110200438 Ehsan Ahmed <bc110200438@vu.edu.pk>
Date: Mon, Apr 23, 2012 at 11:51 PM
Subject: ACC501 solution required
To: bc-help@googlegroups.com, vuhelp_pk@googlegroups.com, vu-study-corner@googlegroups.com, vu-edu-pk@googlegroups.com


AOA everyone. Idea solution required for ACC501 assignment.

ABC Company Limited and XYZ Company Limited are involved in the manufacturing of Leather

products. Following are the balance sheets of both the companies for the year 2010.

Balance Sheets

As on 31st December 2010

Particulars ABC Company XYZ Company

Rs. (in millions) Rs. (in millions)

Cash 86 20

Account Receivable 172 27

Inventory 396 45

Total Current Assets 654 92

Net Plant and Equipment 2,735 49

Total Assets 3,389 141

Accounts payable 315 8

Notes payable 232 10

Total Current Liabilities 547 18

Long term debt 532 50

common stock and paid in surplus 510 55

Retained earnings 1800 18

Total owners' equity 2,310 73

Total Liabilities & Owners' Equity 3,389 141

Although both the firms are involved in the same kind of business but their balance sheets represent

a huge difference in their financial strength. As a finance student, you are required to analyze these

balance sheets by using the common size analysis technique. Also provide comments on the

liquidity and leverage position of both the companies with the help of your analysis.

Note: Your solution should be in the following form of single comparative statement followed by the

comparative comments regarding the liquidity and leverage position of both companies.

Comparative Common-Size Balance Sheet

As on 31st December 2010

Particulars ABC Company XYZ Company

Cash XX.XX % XX.XX %

Comparison of Liquidity Position

ABC Company XYZ Company

(comments on the liquidity position of

ABC Company)

(comments on the liquidity position of

XYZ Company)

Comparison of Leverage Position

ABC Company XYZ Company

(comments on the Leverage position of

ABC Company)

(comments on the Leverage position of

XYZ Company)

Question # 2 (10 Marks)

Fawad Farooq is working as Chief Financial Officer (CFO) in a manufacturing concern. One of his job

responsibilities is to analyze the company's financial results every year in order to make necessary

improvements. While analyzing the financial results for the current year, he noticed that Return on

Equity (ROE) of the company is lower than that of previous year. He called up Faiq Aslam, the

Finance Manager of the company, to discuss the matter but Faiq remained failed to provide any

reasonable justification in this regard. Fawad was well aware of the fact that the technique of Du-

Pont Analysis is widely used to analyze ROE of the company by looking at its different aspects. He

asked Faiq to provide him with some information and Faiq presented him the following information

related to the current year and previous years:

Particulars Current Year Previous Year

Total Assets Rs.10,253,000 -

Total Equity Rs. 6,582,000 -

Total Debt Rs. 3,671,000 -

Sales Rs. 5,352,000 Rs.5,250,000

Gross Profit Rs. 3,201,000 Rs.3,198,000

Net Profit Rs. 2,000,000 -

Profit Margin - 52%

Total Assets Turnover - 0.50 times

Equity Multiplier - 1.55 times

You are required to explain (with the help of calculations) that how CFO will perform the Du-Pont

Analysis by using the above information. Also, indicate the exact reason of unsatisfactory ROE for the

current year.

Note: You are required to provide complete calculations along with interpretations.

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