Financial Management II

Question 1

Part A: Ratio calculation for year 2020

I. Accounts Receivable Turnover

Sales/Average account receivable = 22446902/1158063.50 = 19.38 times

II. Current ratio

Current Asset/Current liabilities = 6077266/3856176 = 1.57 times

III. Average collection period

Average account receivable/sales x 365

22446902/1158063.50 x 365 = 0.057 x 365 = 20.805 days

IV. Inventory turnover

Cost of goods sold/Inventory = 17730725/3183008 = 5.57 times

V. Debt equity ratio

Total liabilities/ equity = 6038941/6883631 x 100 = 87.729%

VI. Return on asset

Profit before interest and tax/net assets = 2081712/2221090 x 100 =93.72%

VII. Price to earnings ratio

Market price per share/earnings per share = 6.10/109.47 = 0.0557 or 5.57 times

Part B

Comparison with industry ratios:

Account receivable ratio: The account receivable turnover ratio of industry is 15 times while ratio of Latherman is 19.38 times. It means this company has strong account receivable ratio.

Current ratio: current ratio of industry is 2.43 and ratio of the company is 1.57 So, it means the company has low ratio and weal financial position in term of current ratio.

Average collection period in industry is 25 while the ratio of company is 21days. There is no greater difference and it shows the numbers of days in which company is able to recover its debts.

Inventory turnover days of industry is 4.48 times while for the company it is 5.57 times which means company has greater power to rotate its inventory in a year.

Debt to equity ratio: Debt to equity ratio of the company is 0.55 and for the company it is 87.729 it means company is financed by debt.

Return on assets: Return on asset on company is 13.5% and for the company it is 93.72%. It means company has higher ratio than industry and it gain more benefits on its assets.

Price earnings ratio of company is 8 times and while for the company it is 5.57 times. It means company pay greater amount of dividends to its shareholders.

Question 2

a) Systematic risk refers back to the hazard inherent to the complete marketplace or marketplace segment. Systematic risk, additionally recognized as “unclassified risk,” “volatility” or “marketplace hazard,” impacts the general marketplace, now no longer simply a specific inventory or industry. This sort of risk is each unpredictable and not possible to absolutely avoid. Examples of systematic risk include: Macroeconomic factors, which includes inflation, interest rates, currency fluctuations. Environmental factors, which includes weather change, natural disasters, resource, and biodiversity loss. Social factors, which includes wars, converting consumer perspectives, populace trends. Unsystematic risk, or specific risk, is that that is related to a specific investment this kind of company's stock. Unsystematic risk may be mitigated via diversification, and so is likewise referred to as diversifiable risk. Once diversified, traders are nevertheless challenge to market-huge systematic risk.

ii. You can lessen your investment risk with the aid of using removing shares with excessive P/E ratios, unstable control and inconsistent income and income growth. Diversify your funding portfolio throughout investment product sorts and monetary sectors. Diversification reduces your common risk with the aid of using spreading it over a whole lot of products.

b) Rate of return