BWFF2013 FINANCIAL MANAGEMENT I (A112)

TUTORIAL WEEK 2 TOPIC: FINANCIAL STATEMENTS PART A: CONCEPTUAL 1. Under The Companies Act 1965, all public listed companies registered under Registrar of Companies (ROC) must draw up annual financial statements according to accounting standards by Malaysian Accounting Standards Board (MASB). 2. The annual report of a company is sent to current owners (shareholders) and the SEC and is also made available to prospective owners, financial analysts, and others interested in a companys performance. As a result of the fair disclosure regulation, companies are required to release all material information to all investors at the same time. 3. The Balance Sheet is a summary or snapshot of the organizations uses of funds (assets) and sources of funds (liabilities and equity) at a specific point in time. A Balance Sheet always balances, in that assets are equal to the sum of liabilities plus equity; A = L + E. The Income Statement reports the organizations performance over a specified period of time. (Profit or loss) The Statement of Retained Earnings reports how net income and dividends affect a companys financial position during the period. The statement of cash flows looks at how cash is generated from utilizing assets and how it is paid to those that finance the purchase of the assets. 4. a. A current asset is cash or items such as accounts receivable and inventory that would normally be turned into cash during the business cycle. Long-term assets are assets of the firm used to make the products of the firm but are not expected to turn into cash during the business cycle. These assets are items such as buildings and equipment. b. A current liability is an obligation of the company that the company expects to pay off during the coming business cycle. Long-term liabilities are obligations that will be paid off in future business cycles or years. c. A debtors claim is a liability and has a fixed dollar amount to the claim. An owners claim is a residual claim and this claim is for all the remaining value of the company once the debtors are satisfied. 5. The Statement of Retained Earnings explains the distribution of the net income from the past year. Net income is either retained in the company or paid out to owners in the form of dividends. 6. The three components of the cash flow from assets include: operating cash flow, net capital spending, and change in net working capital.

BWFF2013 FINANCIAL MANAGEMENT I (A112)

7. An increase in net working capital means that there has been a net increase in cash outflows, since the increases in current assets have outweighed the increases in sources of funds resulting from an increase in current liabilities. 8.
ASSETS = LIBILITIES + EQUITY Cash a. b. c. d e. f. g. h. i. Investment Property & Equip. Account receivables Inventory ST borrowing Account payable LT debt Equity

PART B: CALCULATION Question 1 a. Sura Frozen Balance Sheet for the Year Ending December 31, 2011 ASSETS Total assets LIABILITIES & EQUITY Liabilities Total liabilities Equity Total equity Total liabilities and equity RM 1,123,800

571,900

551,900 1,123,800
2

BWFF2013 FINANCIAL MANAGEMENT I (A112)

Sura Frozen Income Statement for the Year Ending December 31, 2011 RM 573,000 297,000 276,000 79,000 66,000 145,000 131,000 (4,750) 126,250 (50,500) 75,750 50,000 25,750

Sales Cost of goods sold Gross profits General & admin. expense Depreciation expense Total operating expense Operating income (EBIT) Interest expense Earnings before taxes Taxes Net income Dividends Addition to retained earnings b. NWC = Current assets Current debt = RM253,900

c. DPS

= Total dividends / Total shares outstanding = RM5

d. EPS = Net income / Total shares outstanding = RM7.58 e. OCF = EBIT + Depreciation Taxes = RM146,500

Question 2 a. OCF = EBIT + Depreciation Taxes = RM398 = Ending Net FA - Beginning Net FA + Depreciation = RM310

b. Net Capital Spending

c. NWC

= Ending Net Working Capital - Beginning Net Working Capital = RM40 = OCF - Capital Spending - NWC = RM48
3

d. Cash Flow from Assets

BWFF2013 FINANCIAL MANAGEMENT I (A112)

e. Cash Flow to Creditors Term Debt]

= Interest Expense [Ending Long-Term Debt + Beginning Long= RM87

f. Cash Flow to Stockholders

= Dividends Net Capital Raised = RM (39)

g. Cash Flow Indentity CF from Assets = CF to Creditors + CF to Stockholders 48 = 87 + (-39) h. Statement of RE Retained Earnings balance, 2010 + Net Income - Dividends Ending balance, retained earnings, 2011 RM 300 3 1 302