19 august financial analysis

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FINANCIAL ANALYSIS

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FINANCIAL ANALYSISDr. T.K. Jain.

AFTERSCHO☺OLCentre for social entrepreneurship

BikanerM: 9414430763

[email protected]

www.afterschoool.tk

http://www.afterschool.tk/

http://www.afterschoool.tk/


Present sales are 21000 units. Selling price Rs. 40 per unit, variable costs are Rs. 25 per unit. Total costs Rs. 35. Credit period = 1month. If you increase credit period to 2 month, you will have 8% increase in sales. You want 25% return on investment. Should you go for it?

If you increase credit, sales will increase from 21000 to 22680. Thus increased sales will be 1680. You get contribution of (40-25) = 15 per unit. Thus your total contribution is (1680*15) = 25200.


Solution continued . . . Contribution is Rs. 25200. Your total sales is (40*21000) = 840000, out

of which 1/12 is blocked in working capital. The cost of these items is (35*21000) = 735000*1/12 = 61250.

Fixed cost will remain same. (10*21000). =210000 + variable cost (25*22680)=567000.

Total cost is 777000. out of which 2 month money is blocked. 777000*2/12= 129500.

Thus additional money blocked is (129500-61250)= 68250.


Solution . . .. Our returns are : 25200/68250 *100 = 36 We get 36% return, which is more

than our expected return, therefore we should grant this credit facility to our customers.


Prepare balance sheet with the following information: GP = 54000, Equity + reserve = 6 lakhs,

GP margin = 20%, Credit sales to total sales ratio = 80%, Asset turnover = .3 times, inventory turnover = 4 times.

Average collection period = 20 days. Current ratio = 1.8, long term debt to equity ratio = 40%. GP = GROSS PROFIT


SOLUTION . . . . From GP ratio, find sales. GP is 54000, 54000*100/20 = 270000(total sales). Credit sales is 80% of total sales so

credit sales is 216000. Asset turnover is .3, Sales / assets = .3 Assets = 270000/.3 = 9 lakh


Solution . . .. Inventory turnover = (sales- GP) / avg.

stock (270000-54000)/avg. inventory = 4 Inventory = 54000. Debtors turnover ratio = 360/avg.

collection period 360/20 = 18.


Solution . . . . Debtors turnover ratio = credit sales /

avg. debtors. =216000/debtors = 18 Avg. debtors = 12000. Current ratio = current assets/ current

liability (12000+54000+cash)/ current liability =

1.8


Solution . . . . Debt equity = Debt / Equity. Debt / 6 lakh = 40%. Debt = 240000. Total assets = 900000 Current liability = (total assets – debt –

euity) =900000- 240000-6 00000 = 60000


Solution . Current ratio = current assets/ current

liability (12000+54000+cash)/ current liability =

1.8 66000+cash / 60000 = 1.8 66000+cash = 108000 Cash = 42000.


BALANCE SHEET LIABILTY EQUITY 6 LAKH Debt 2.4 lakh Current liability

60000

ASSET Cash = 42000 Inventory =54000 Debtors =12000. Other fixed assets 792000(balancing

fibure).


IF COVARIANCE BETWEEN TWO VARIABLES IS 20 AND VARIANCE OF ONE OF THE VARIABLE IS 16, WHAT IS THE VARIANCE OF THE OTHER VARIABLE?

We know that covariance is equal to : product of variances of the two series. Variance is the sum of square of the differences. We we take square root of 16, we get 4, thus variances from one variable are on an average 4. The variances from other variables must be 20/4 = 5 or more. Thus the variance can be any where close to 25 (exact answer cannot be deterined). Answer


If correlation is .7, then how much variations can be accounted for? Just square .7, we get .49, this is the

variation that can be accounted for (explained). Thus 49% variation can be accounted for or explained.


What is the highest correlation value possible? 1.


What is the least correlation value possible? -1


Find correlation and regression between the following two series? X Y

23 2522 1425 1223 1632 21


Solution . . .

X Y Dx Dy DxDy

23 25 -2 4 7 55 -14.8

22 14 -3 9 -4 13 10.8

25 12 0 0 -6 31 0

23 16 -2 4 -2 2.6 3.2

32 21 7 49 3 12 23.8

25 18 # average 23 4.6

Std deviation 4 Std. Deviations 4.8 0.2661

B 0.20318

B 0.348485

-4.36415


Solution . . . Correlation = .26 B = .34 A = Average of Y – B * Average of X. A = 17.6 – (.34*25) =9.1 Thus basic equation is Y = A+BX and A

is 9.1 and B is .34 answer.


A coin is tossed 8 times, what is the probability of getting 4 heads? The basic formulae is as under: NCR*P^R*Q^(N-R) P= probability of getting head Q = probability of getting tail = 1/2 N= 8, R=4, P=1/2, Q = ½, 8C4 = (8!) / (4!*(8-4)!) *(1/2)^4*(1/2)^4 40320/(24*24) * 1/16 *1/16 70*1/256 = .27 answer.


A coin is tossed 8 times, what is the probability of getting 2 heads? The basic formulae is as under: NCR*P^R*Q^(N-R) N= 8, R=2, P=1/2, Q = ½, 8C2 = (8!) / (2!*(8-2)!) *(1/2)^2*(1/2)^6 40320/(2*720) * 1/4 *1/64 28*1/256 = .109 answer.


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19 august financial analysis

Economy & Finance