Assignment

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BARUCH COLLEGE, CUNY MARXE SCHOOL

FALL 2021 PAF 9140/PATHAK

Budgeting and Financial Analysis

Assignment 3 – Panama Water Authority Exercise (Maximum Grade: 15 points)

Due: 11.59 PM, November 17, 2021 through the Blackboard Link

The Assignment:1

You have been called in as a consultant to the new water authority director. She has told you that the Panamanian government embarked recently on a campaign to improve living conditions in rural areas. As part of the campaign, the water authority began a program to deliver more potable water to people in rural areas. She has told you that in low-income countries, the most frequent cause of death is gastro-intestinal disease. There seems to be a correlation between reduction of gastrointestinal disease and the extension of potable water services to a large proportion of the low-income populations. This knowledge has in part served as the rationale for extension of potable water services to rural areas.

The new director informed you that the service expansion campaign she inherited has certain difficulties. In order to orient you, she has given you balance sheet and income statements (Tables 1 and 2) and the production data (Table 3). She would like you to do an analysis and write a 2-3 page memo with a preliminary identification of the most important problems and a discussion of possible causes and solutions. Compute the ratios listed in Table A and include that as an appendix table in your memo. In the first few paragraphs of your memo present a general discussion along with the identification of the key issues and possible solutions to the problems. Subsequently, discuss the specific areas like liquidity, solvency, profitability and efficiency, and describe the trends and what they imply.

Additional Instructions:

o There are two additional files on the Blackboard that accompany this assignment. Please download and go through them before working on the assignment.

(1) Panama Worksheet in MS-Excel is the digitized version of the tables in pages 2-6. The excel files also provide hints for calculating the key ratios.

(2) Panama Water Authority – Supplement A is a supplement to the case study that outlines the basic concepts for financial analysis in public enterprises.

o Your memo should follow the memo format that we have discussed earlier. Use appropriate section breaks, use single-spaced Times New Roman (12-point) Font, and include an executive summary. Executive Summary and technical appendix is not part of the page limit. Any late submissions are subject to 10 percent per day penalty.

1 Panama Water Authority Exercise is the intellectual copyright of the President and Fellows of Harvard College. The exercise was written by Marc Lindenberg for use at the Kennedy School of Government, Harvard University.

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Table A

(A digital version of this table is available on the Blackboard, please do all your calculations in the spreadsheet, and include the final table as an appendix in your memo)

PLEASE NOTE THE REVERSE TIME ORDER, 1974, 1973, 1972

INSTRUCTOR REVIEW ONLY -- DO NOT COPY

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INSTRUCTOR REVIEW ONLY -- DO NOT COPY

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INSTRUCTOR REVIEW ONLY -- DO NOT COPY

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INSTRUCTOR REVIEW ONLY -- DO NOT COPY

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A few things to keep in mind during calculations

(1) Be careful about the negative sign since in accounting +/- signs are used for showing whether the money is coming in or going out. In formulas, that ask you to subtract something -- you'll get a wrong answer if you end up using two negative signs. For example, money in uncollectable accounts is expressed in negative, that does not mean you will subtract it again when calculating average collection period. Two negative signs will make it positive. Thus, you'll end up adding uncollectibles to receivables. A similar negative sign problem you might see in Time Interest Earned Ratio, which should be a positive number.

(2) In average collection period in days (water and valor) - multiply 365 with the entire ratio, i.e., keep it in the numerator. See this link to understand it clearly https:// www.investopedia.com/terms/a/average_collection_period.asp. If you do it right, for 1974, you should get average collection period of around 86 days for water and 398 for valor. Remember, uncollectable accounts are already expressed with a negative sign. (3) Total Asset Turnover is listed as a liquidity ratio in the table, but it should be under efficiency ratios.