Forge Group Ltd Case Study (A) The Revealing Nature of Numbers
QUESTIONS -
1. READING FINANCIAL STATEMENTS
Refer to FGL's June 30, 2013, financial reports and answer the following questions:
a. State the accounting equation at the beginning and end of the year and the changes between the beginning and end of the year.
b. State the changes in the company's equity during 2013. Speculate on why the change.
c. What is the main asset the company owns, and what is its value? Compare this to the total equity. State your conclusion from this comparison.
d. Outline the "other" item that makes up comprehensive income. Why is it important to segregate this amount on the income statement?
e. Outline the largest expenses on the income statement. Compare them to the cash, debtors, creditors, and inventory balances. Comment on this comparison.
f. State the total revenue and net profit attributable to members of FGL and earnings before interest and tax (EBIT).
g. Compare the net profit with the net cash flows from operating activities. Which amount is larger? Is this normal?
h. Examine the Reconciliation of Cash Flows from Operations with the net profit after tax (NPAT). Outline the three major reconciliation items, and state how they changed.
i. Comment on the changes discovered in the cash flow/ profit reconciliation amounts from part h.
j. Outline the changes that have occurred in the company's financing activities. State your opinion on the appropriateness of the quantum of the dividends paid to shareholders.
k. State what investment activity FGL undertook in 2013. Was there a net investment or a divestment?
2. WORKING CAPITAL MANAGEMENT
a. Explain the concept of working capital, and outline the working capital accounts on the balance sheet.
b. Discuss why it is important for firms to manage their working capital. In your discussion, comment on the level of working capital needed and steps that firms can take if their working capital is insufficient.
c. Demonstrate how working capital is related to cash and profit.
d. Compute the operating cash cycle for FGL for the years 2011, 2012, and 2013. Outline and discuss the implications of this computation.
3. FINANCIAL STATEMENT ANALYSIS
a. For the years ending June 30, 2013, and June 30, 2011, compute and discuss the return on equity (ROE), return on assets (ROA), profit margin ratio, asset turnover ratio, current ratio, cash flow ratio, debt-to-equity ratio, interest coverage ratio, debt coverage ratio, NTAB, EPS, DPS and the PER.
b. Discuss the major differences between your analysis of the June 30, 2013, report and the June 30, 2011, report (prior to the takeover of CTEC). Appraise the problems faced by FGL management in light of your analysis.
c. Using the January 31, 2014, unaudited financial information, compute the ROE, ROA, profit margin ratio, asset turnover ratio, current ratio, cash flow ratio, debt-to-equity ratio, interest coverage ratio, debt coverage ratio, NTAB, EPS, DPS and the PER. Comment on the ratio analyses performed.
4. COMPANY GROWTH
a. Outline and compare two types of company growth strategies.
b. Hypothesize why it is important to compute financial metrics that link the income statement and the balance sheet to help understand the growing business. Use the FGL example to test your hypothesis.
Attachment:- Case Study.rar