Case analysis

Question 1

1. Identify Business

Answer 1

(Group structure, 21)

What sort of company is your case company
i. Manufacturer/producers and Retailers and Service companies

Type of business
i. 2 divisions

What do they earn money on?
i. On chart

Question 2

2. Reports

Answer 2

When is the company’s year end? (Jan-dec) (financial statement)

What accounting standards does your company follow? (Effects of new and amended IFRS) and IAS 28.
i.German legal requirements
(330, Independent Auditor’s Report)

Independent auditors opinion
i. Report comply in all material respect

Question 3

3. Analysis

Part 1

Answer 3

1. Presentation

Sales revenue (%-change)

Operating profits/results
(how much did they make on sales) EBIT

Profit before taxes.

Question 4

3. Analysis

Part 2

Answer 4

2. Profitability

Gross Profit ratio
1.Groff profit / revenue

Operating profit margin (!!!!!) :
1.Operating profits / revenue

Profit margin ratio
1.Profit before tax (Net income) / revenue

ROE; return on stockholder’s equity.
1.Return on equity before tax in report

Return on invested capital. (!!!!!!, but in report)
1.Return on investment (ROI) in report

Question 5

3. Analysis

Part 3

Answer 5

3. Liquidity

Current ratio.
1. Rule of thumb 1 to 2

Accounts receivable current ratio (ART)

   1. (the higher the no. the better)
   2. Revenue *0,5 (assuming 50% is sold on AR)
   3. Average AR: Trade receivables (x+x)/2
   4. ART-ratio: ^ those two divided

Number of days sales in receivable
1. 365 / ART

Inventory turnover ratio
1. Cost of sales / average Inventories (x+x)/2

Number of days in inventory
1. 365/ ITR

Cash to cash operating cycle
1. Number of days inventory +
Number of days Accounts receivable

Question 6

3. Analysis

Part 4

Answer 6

4. Solvency

Debt-to-equity ratio (the lower, the better)
1. (Total Noncurrent Liabilities +
Total Current liabilities) / Total equity
2. If 1 it means equal. Above 1 means more debt
than equity.

Cash flow from operations to current liability

  1. Cash flows from operating activities / Average liability
  2. average liability: Total current liability (x+x)/2
  3. (Cash right now to cover current liabilities)

Question 7

Conclusion

Answer 7

Not invest.
Based on;
- Gross profit increased
- Operating profit: decreased
- Profit before taxes: increased
- slightly increase in current ratio at 1,09 - should be 2.
- Has cash bounded in increasing amount of days
- Decreasing ROI, ROE
- more debt than equity.
- Does not have cash to cover current liability

need to compare to other firms in sale industry to estimate fully and evaluate possible future developments in the economy