International Financial Management - project 2 (Calculations)

INTERNATIONAL FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
QUESTION ONE............................................................................................................................1
a) Calculation of the ratios...........................................................................................................1
b) Financial performance of both the companies........................................................................2
c) Limitations of the analysis.......................................................................................................5
QUESTION TWO...........................................................................................................................6
a) Calculation of the Weighted Average Cost of Capital and Book value weighted average cost
of capital of Art Co......................................................................................................................6
b) Circumstances where the weighted average cost of capital of company could be used in the
investment appraisal techniques and limitations as discount rate...............................................8
QUESTION THREE.......................................................................................................................9
Objectives of the working capital management and central role of working capital in financial
management.................................................................................................................................9
REFERENCES..............................................................................................................................12

QUESTION ONE
a) Calculation of the ratios
Profitability ratio Green Plc Blue Plc
Employed Capital
(Total Assets -
Current Liabili-
ties) 3295 2559
Net operating profit 491 290
Return on capital employed
Net operating
profit/Employed
Capital 14.90% 11.33%
Cost of Sales 1636 2316
Sales 3272 3860
Gross Margin
Total Sales -
COGS/Total Sales 50.00% 40.00%
Net profit 173 191
Sales 3272 3860
Net profit ratio
Operating In-
come/ Net Sales 5.29% 4.95%
Investor Ratios Green Plc Blue Plc
Net Income 173 191
Shareholder's Equity 1195 2359
Return on Equity
Net Income /
Shareholder's Eq-
uity 14.48% 8.10%
Net Assets 1195 2359
Sales 3272 3860
Asset Turnover Ratio
Net Income /
Shareholder's Eq-
uity 36.52% 61.11%
Efficiency Ratios Green Plc Blue Plc
Inventory 273 89
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Trade Receivables 478 322
Cost of Sales 173 191
Sales 3272 3860
Inventory turnover ratio Sales / Inventory 0.63 2.15
Account receivable turnover
ratio
Sales / Accounts
Receivable 6.85 11.99
Gearing Ratio Green Plc Blue Plc
Debt 2100 200
Equity 1195 2359
Debt equity ratio Debt/ Equity 1.757 0.085
Interest cover ratio Green Plc Blue Plc
Operating profit 491 290
Interest Expenses 250 24
Interest cover ratio
Operating profit /
Interest Expense 1.96 12.08
b) Financial performance of both the companies
Profitability of the company
Return on capital employed
The ratio is used for identifying the efficiency of the management to utilise the resources
of company for generating returns. It could be evaluated that the ROCE of Green plc is 14.90%
and of Blue plc is 11.33%. From the above ratios it could be evaluated that the management of
Green is highly efficient in utilising the existing resources of the company to generate returns.
Higher return shows higher effectiveness of the management to utilise the resources in
generating the returns.
Gross Profit Margin
The ratio is used for measuring the ability of company to generate profits after meeting
the costs of production or manufacturing. It is the amount left with company after meeting the
cost of sales to carry out further business operations of company. Gross profit margin of green
plc is 50% where of Blue plc is 40%. It could be analysed that Green is more efficient in
generating higher profits by effectively managing the cost of operations of business.
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