Financial Accounting: Corporate Governance, Ethics, and Financial Theories

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL ACCOUNTING
Table of Contents
Part A:..............................................................................................................................................2
Answer to Question 1:.................................................................................................................2
Requirement a:.........................................................................................................................2
Requirement b:.........................................................................................................................2
Requirement c:.........................................................................................................................2
Answer to Question 2:.................................................................................................................2
Answer to Question 2:.................................................................................................................3
Answer to Question 4:.................................................................................................................4
Answer to Question 5:.................................................................................................................5
Part B:..............................................................................................................................................5
Introduction..................................................................................................................................5
Role of Ethics in Corporate Governance.....................................................................................6
Agency Problem and Shareholders Wealth Maximization..........................................................7
Financial Theories.......................................................................................................................7
Conclusion...................................................................................................................................8
References........................................................................................................................................9

2FINANCIAL ACCOUNTING
Part A:
Answer to Question 1:
Requirement a:
Particulars Amount
Earnings per share $0.02
P/E Ratio 7.66
Stock Price as on 30th June 2018 $0.15
Requirement b:
Particulars Amount
Earnings before Interest & Tax $13,05,000
Interest Expense -$12,47,000
Tax Expenses -$17,000
Net Earnings after Tax $41,000
Earnings per share $0.02
Nos. of Shares Outstanding 20,50,000
Market Price per share $0.15
Market Capitalization $3,14,060.00
Requirement c:
The average P/E ratio of the retail industry in Australia is 96.81, which is very higher
than the current P/E ratio of ABC Ltd (Pages.stern.nyu.edu, 2018). It means that the overall
Australian retail industry pays comparatively lower earnings than ABC Ltd. The difference
between the P/E ratios of ABC Ltd and overall retail industry has been caused as the other
companies in the industry have not generated sufficient earnings in comparison to their market
share prices.

3FINANCIAL ACCOUNTING
Answer to Question 2:
The current ratio and quick ratio of ABC Ltd are shown in the following table:
Particulars 2016 2017 2018
in $'000 in $'000 in $'000
Cash $342 $344 $281
Accounts Receivable $4,346 $4,892 $5,239
Inventory $6,483 $7,196 $8,013
Current Assets $11,171 $12,432 $13,533
Bank Overdraft $14 $0 $65
Accounts Payable $6,224 $4,167 $3,982
Current Liabilities $6,238 $4,167 $4,047
Current Ratio 1.79 2.98 3.34
Quick Ratio 0.75 1.26 1.39
From the above table, it can be stated that the current ratio of the company has remained
above 1 for last year and the quick ratio has become more than 1 over the period. It indicates that
the company has maintained sufficient current assets, as well as, highly liquid assets to pay off
its current liabilities. Moreover, as the ratios have increased over the years, it also implies that
the liquidity position of the company has been improving with the due course of time.
Answer to Question 2:
As the current ratio and quick ratio have been satisfactory for the last three years, it can
be stated that the company has retained adequate working capital to operate its business.
Moreover, the receivables turnover ratio, shown below, has decreased over the period, which
denotes that the company has become slower in collecting dues from its debtors. The payable
turnover ratio has increased, which implies that it is paying its creditors more quickly than