TASKS a) Compute the following ratios for each year. (10 Marks)  Liquidity Ratios  Profitability Ratios  Efficiency Ratios  Capital Structure Ratios (Gearing)  Market Ratios (dividend, PE etc.) b) Based on the above computations and literature review analyse liquidity, profitability and efficiency position of the company. (Literature Review: 10 marks; analysis: 20 marks; Total 30 marks) c) As a financial analyst using the ratios and any other information contained in the financial statements, would you recommend buying these companies shares. Why or why not? Discuss. (10 Marks) Individual Assignment - Spring 2016 Module: Financial Analysis for Managers (ECM05EKM) ID NUMBER Level: PG Max. Marks: 100 Duration: 5 weeks Financial Analysis for Managers (ECM05EKM) – Spring – 16 – IA–QP ECM05EKM (QP) Page 2 of 4 Q2. Ahmed Al Balushi has conducted financial analysis of the two proposed expansion projects of Beach Hotels Group, Project 1 - Commercial Centre and Project 2 - New Cottages. At this stage it would only be possible to fund one of the two proposed projects as inflation in the GCC region is a problem and the costs of capital is comparatively high at 14%. Ahmed presents the following figures for your consideration. Details of cash inflows have only been presented for 6 years as he considers that financial information after this date is likely to be highly inaccurate, especially as the GCC economies has been unstable in recent times. Predictions are based on an average occupancy rate of 75% for the cottages for the first 3 years, rising to 85% in years 4, 5 and 6. (30 marks) Ahmed has decided that the investments will only be considered if they meet the following criteria: Payback 3 Years Average Rate of Return 35% Net Present Value RO. 200,000 a) From the information presented in the case study, identify the reasons why Ahmed has chosen such a short Payback period and high Average Rate of Return. (4 marks) b) Using the information provided, calculate the Payback, Average Rate of Return and Net Present Value, for both the projects and state whether the options satisfy Ahmed's criteria for investment (9 marks); from the calculations and additional financial and non-financial information provided in the case study, select an expansion option and justify your choice (7 marks). (16 marks) c) Critically reflect on the techniques used by Mr Ahmed for investment appraisal. (10 marks) Q3. An enthusiastic marketing manager suggests to his managing director that 30 percent increase in sales can be achieved by a 20% reduction in selling price. The managing director wants to know the consequences of the proposal before approving it. (20 marks) Particulars Amount (OMR) Present selling price per unit 7.5 Present volume of sales 200,000 units Total variable cost 1,050,000 Total fixed cost 360,000 Details Project 1 Commercial Centre Project 2 New Cottages Initial cost 840,000 440,000 Cash flows: Year 1 160,000 110,000 Year 2 228,000 130,000 Year 3 340,000 200,000 Year 4 360,000 220,000 Year 5 400,000 230,000 Year 6 420,000 260,000 Financial Analysis for Managers (ECM05EKM) – Spring – 16 – IA–QP ECM05EKM (QP) Page 3 of 4 Assuming you are the finance manager of the company, from the information given above: a) Compute the profit for present and proposed plans. (6 marks) b) Examine the consequences of proposed plan assuming that 30% increase in sales is realised. Evaluate the usefulness of Break Even Analysis in taking business decisions. (10 marks) c) At what volume of sales can the present profits be sustained, after effecting the price reduction?