Business Finance Assignment Version 1
Name of Tutor : Mr. Chai Ming Perng
Name
Student ID
1
Lynie Liew Tyng Huey
14WBD05482
2
Gan Hin Hun
14WBD03034
3
Kong Boon Kee
14WBD03958
4
Hew Zee Ching
12WBD05302
5
Choo Ke Xin
14WBD02061
6
Kuan Chun Loong
14WBD04522
Coursework Report
TOPIC: Financial Ratio Analysis
Section A
(i) CALCULATION OF FINANCIAL RATIOS
Financial Ratios
Actual
30 June 2015
Forecast
30 June 2016
(a)
Operating Profit Margin
(b)
Interest cover
(c)
Inventory days
(d)
Receivable days
(e)
Payable days
(ii) COMMENTARY
(a) Operating profit margin
The operating profit margin express a company’s profit in percentage form after paying all the variables costs, such as wages and raw materials. By using operating profit (gross profit minus operating expenses) and net sales, it shows a company’s efficiency in controlling the cost and expenses that related with business operations (Wilkinson, 2013). Generally, a high percentage of operating profit margin indicates a good condition for a company because the company not only has the ability to control its expenses but profit can be obtained. Besides that, if there are any increases in the competition or costs, the company is able to face it with the profit gained (Accounting-Simplified, 2010).
According to the calculation (i) (a), the operating profit margin in the actual year 2015 15% is higher than the forecasted year 2016 which is 11.72% (or 12%). It appears that in year 2015 every RM1 of sales earns a profit of RM0.15 while in year 2016 RM0.12, a totally drop of RM0.03 of profit occur.
Possible reasons for the declining of operating profit margin in year 2016 are the discretionary spending of Jupiter Berhad (Jupiter) causing the expenses to increase by 20% and also buying materials carelessly which cause an increase in cost of sales by 63%.
(b) Interest cover
Interest cover ratio is to calculate the company’s capability to pay its interest payments. It shows the number of times of a company whether it could
Name
Student ID
1
Lynie Liew Tyng Huey
14WBD05482
2
Gan Hin Hun
14WBD03034
3
Kong Boon Kee
14WBD03958
4
Hew Zee Ching
12WBD05302
5
Choo Ke Xin
14WBD02061
6
Kuan Chun Loong
14WBD04522
Coursework Report
TOPIC: Financial Ratio Analysis
Section A
(i) CALCULATION OF FINANCIAL RATIOS
Financial Ratios
Actual
30 June 2015
Forecast
30 June 2016
(a)
Operating Profit Margin
(b)
Interest cover
(c)
Inventory days
(d)
Receivable days
(e)
Payable days
(ii) COMMENTARY
(a) Operating profit margin
The operating profit margin express a company’s profit in percentage form after paying all the variables costs, such as wages and raw materials. By using operating profit (gross profit minus operating expenses) and net sales, it shows a company’s efficiency in controlling the cost and expenses that related with business operations (Wilkinson, 2013). Generally, a high percentage of operating profit margin indicates a good condition for a company because the company not only has the ability to control its expenses but profit can be obtained. Besides that, if there are any increases in the competition or costs, the company is able to face it with the profit gained (Accounting-Simplified, 2010).
According to the calculation (i) (a), the operating profit margin in the actual year 2015 15% is higher than the forecasted year 2016 which is 11.72% (or 12%). It appears that in year 2015 every RM1 of sales earns a profit of RM0.15 while in year 2016 RM0.12, a totally drop of RM0.03 of profit occur.
Possible reasons for the declining of operating profit margin in year 2016 are the discretionary spending of Jupiter Berhad (Jupiter) causing the expenses to increase by 20% and also buying materials carelessly which cause an increase in cost of sales by 63%.
(b) Interest cover
Interest cover ratio is to calculate the company’s capability to pay its interest payments. It shows the number of times of a company whether it could