MBA Fulltime

FINANCIAL ANALYSIS & MANAGEMENT

FINAL Examination May 2012

FINANCIAL ANALYSIS & MANAGEMENT FINAL Examination May 2012

Answer FOUR questions : The compulsory question of Section A and any THREE out of FIVE from Section B The total time allowed for this examination is THREE HOURS. Please plan your work to ensure you are able to complete all the requirements of this examination on time.

SECTION A

QUESTION ONE You have been provided the following information about a company that you are analysing: Item Revenue Operating Profit Net Profit Interest Expense Cash & Cash Equivalents Total Assets Total Non Current Assets Shareholder Funds Current Liabilities Total Borrowings (both short term and long term) Total number of shares in issue and ranking for dividend Sector PE RM 000s 330,000 55,000 25,000 8,000 32,000 290,000 110,000 100,000 120,000 90,000

300million shares 12 times

MBA Fulltime

FINANCIAL ANALYSIS & MANAGEMENT

FINAL Examination May 2012

(a) You are required to compute the following ratios using the information provided above : 1 2 3 4 5 6 7 8 9 10 Operating Profit Margin Net Profit Margin Net Return on Investment Net Return on Equity Current Ratio Cash Ratio Value per share based on PE Ratio Net Asset Value per share Interest Cover Ratio Debt to Equity Ratio 2 marks for correctly computing each ratio. ( 20 marks )

(b) Comment briefly on the financial health of this company suggesting improvements to any weaknesses that you have identified. Your report should cover the areas of PROFITABILITY, LIQUIDITY, WORKING CAPITAL MANAGEMENT, DEBT MANAGEMENT and analysis of INVESTOR RETURNS ( 20 marks ) TOTAL ( 40 MARKS )

MBA Fulltime

FINANCIAL ANALYSIS & MANAGEMENT

FINAL Examination May 2012

SECTION B Answer any THREE Questions from this Section

QUESTION TWO Briefly describe the i. PURPOSE and ii. NATURE of ANY FOUR of the following financing facilities available from banks: a. Bank Overdraft b. Trade Finance c. Housing Loan d. Credit Card e. Term Loan for Business f. Revolving Credit (5 marks for each 20 marks in total )

QUESTION THREE (a) Define the FOUR types of risk that a business needs to take into account, using a classification that distinguishes between risk factors that are external to a firm as opposed to some that may be internal. Provide at least two examples for each type of risk. (2.5 marks for each 10 marks for part (a) ) (b) The Managing Director of the company has read that Risk Management is now an integral part of business planning. The Risk Management process steps are a generic guide for any organisation, regardless of the type of business, activity or function. The basic process steps are: 1. Establish the context 2. Identify the risk 3. Analyse the risk 4. Evaluate the risk 5. Treat the risk

MBA Fulltime

FINANCIAL ANALYSIS & MANAGEMENT

FINAL Examination May 2012

REQUIRED : Explain each process of Risk Management in a MEMO to your Managing Director. (2 marks for each 10 marks for part (b) 20 marks in total )

QUESTION FOUR (a) Distinguish between a direct quote and indirect quote. REQUIRED FOR PARTS (b) to (d) below: Compute the MYR value of the following transactions based on the following three month forward exchange rates: BUYING RM2.987 RM3.030 RM2.449 SELLING RM 3.050 RM 3.120 RM 2.512

1 USD 1 AUD 1 SGD

= = =

(b) Payment due in USD in three months of USD 150,000 (c) Income due in AUD in three months of AUD 100,000 (d) Compute the cross quote between USD and SGD (5 marks for each part) TOTAL : 20 MARKS QUESTION FIVE The cost of capital of a company is the cost of using its long term funds. It is used as the basis of determining the required return on investment projects of the company. (a) Using the information provided below, compute the cost of capital for this company: Required Returns on Equity 15 % Rate of Interest Payment (net of tax) 5 % Total Number of shares Issues (m.) 100 Price Per Share ($) Total Market Value of Bonds ($m.) 5.00 200

MBA Fulltime

FINANCIAL ANALYSIS & MANAGEMENT

FINAL Examination May 2012

(10 marks)

(b) Explain the rationale of using cost of capital as a discount rate for capital investment projects, indicating potential weaknesses in such an approach. (5 marks) (c) If the shares of WIC PLC have a beta value of 1.2, and the return on risk free investments is 5% p.a. whilst average market returns are 15% p.a., compute the Required Returns on the equity of WIC PLC. (2 marks) (d) Explain by what is meant by market risk premium in the Capital Asset Pricing Model and give an example of how it may be calculated. (3 marks) (TOTAL : 20 MARKS)

QUESTION SIX (a) Explain Bird in Hand theory and the tax preference theory in the context of the dividend policy of listed companies. (b) Briefly explain the Pecking Order theory in relation to the capital structure of listed companies (c) Differentiate between Money Market and Capital Market (d) Define EBITDA and explain why it is important in evaluating financial performance of a business. ( 5 marks each) TOTAL : 20 MARKS

[hs/WIC/MBA/FAM/FT0512]

PLEASE ENSURE THAT YOU HAVE ANSWERED ALL PARTS OF ALL QUESTIONS. DO NOT REMOVE THIS PAPER FROM THE EXAMINATION HALL.
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