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FRA_ET 2014

Summary of the Meeting Prepared by the EA to the MD

Ms Anita attended the internal performance review meeting of Z ltd. She joined the company few days
back and was put in charge of the corporate finance function. After engineering she did MBA. She is not
an accounting expert but is good at financial analysis. This was her first meeting with the top
management where the MD of the company addressed the team.
Good morning Gentlemen and the lady! Welcome. I am very happy to inform all that our
financial performance has improved significantly during the last five years. For the year ending
March 2012 our ROE was 20%. Only one of our competitors is able to match our ROE. Hope
you all remember that when I joined this company 5 years back it was less than 8%. We are no
more just an IT Education and Services company. We are now one-stop shop for all the needs of
our customers: from Sarees to Strategic Solutions.
But I am not able to understand the unhappiness of our shareholders.
By the way, Ms. Anita, hope you know that we are a listed company but a large private equity
company holds more than 60% stake in our company. These guys are as bad as Shylock ( of
Merchant of Venice!). I suggest you should spend time with our opening balance sheet and the
transactions for the last year and prepare a note ( remember, I did English at St. Stephen's, No
MBA) so that the numbers can talk to me in English.
The MD was aware of her expertise so entrusted the responsibility of handling the analysis of the
financial position to her. His secretary Ms Cathy gave the following sheet to Anita
Relevant financial numbers:
PAT for the year ending 31
March 2013 = 100,000. Working Capital (as on 31
Mach 13) 495,000;
Deferred Tax Liabilities (as on 31
Mach 13)= 45,000; Accumulated Depreciation (as on 31
Mach 13)
=250,000; Number of shares= 40,000 (FV =5). Company holds 2000 shares (FV =10) in ABC ltd. These
shares were purchased in 2011 at the prevailing market price.
Risk free return (Rf) = 6%; Market Return =18%; Beta = 1.2
Relevant Financial Ratios
Debt Equity Ratio =1:2; Debt 10% long term loan;
Capital to Total Assets ratio = 20%;
Cash to Current Assets = 65%; Current Assets also includes Debtors.
IT system to Total Assets = 25% ; Plant is 2 years old.
Cathy also informed that she will handover the details of the transactions and the accounting policies on
26 September at 3 pm at the computer centre.
But, mam, where is the opening balance sheet? asked Anita.
Cathy smiled and said, Anita, you are a MBA, please talk to the numbers!