## Financial Statement Analysis

Financial Statement Analysis

PURPOSE

Financial Statement Analysis – To calculate and analyse financial ratios using actual reported data.

REQUIRED

Given the financial statements and the additional information, analyse and discuss the financial performance and position of Fantastic Holdings Limited. You should refer to the notes to the financial statements and Chairman’s and Managing Director’s Report for further details and clarifications of changes in the financial statements.

Your analysis should be supported by profitability, liquidity, gearing and other appropriate ratios.

Calculate and analyse financial ratios (percentage and ratio analysis)
Use the 2014 and 2013 annual reports to obtain the financial statement figures needed to calculate the ratios (where there is consolidated accounts, use the consolidated amounts). In addition, students are strongly advised to:
perform horizontal and vertical analyses of the Balance Sheets and Income? Statements for the company

read all parts of the Annual Reports?

Instructions
Your report should calculate* and analyse the following ratios, in clearly identified separate sections: Profitability Rate of return on net sales Rate of return on total assets Asset turnover Rate of return on ordinary shareholders’ equity Earnings per share (given in the Annual Report) Liquidity Working capital Current ratio and Acid-test ratio Inventory turnover and Days in inventory Gross profit percentage Accounts receivable turnover Days’ sales in receivables Gearing Debt ratio Debt to equity ratio Times interest earned ratio (* Tabulate and show the formula and detailed calculations in an Appendix.)

Year-to-year (2014 and 2013) comparisons (horizontal analysis). Use the Director’s? Report and the Notes to the Accounts to further justify your answer.

The components of each ratio should be investigated to determine the significant or? determining factors in any change to the ratio.

These significant factors should then be investigated to determine (to the extent? possible) the cause and sustainability of their change (refer to example below).
Example of a current ratio analysis: Company X current ratio increased from 1.2 to 4.3. The company increased its ability to pay its debts in the short-term. The main reasons for the increase were a 22% increase in cash and a 14% decrease in accounts payable. The increase in cash and the decrease in accounts payable were both a result of reductions in purchases of inventory. This is unlikely to continue as the company was depleting a previous overstock.

Each ratio analysis will be marked on the correctness of the comparisons and the identification of the determining factors. The depth and correctness of analysis of the factors will be the primary criteria for grade differentials in this assignment. The determining factors need not be confined to the annual reports but they must be relevant to your analysis.

The following financial statements should be read in conjunction with the Notes to the Financial Statements in Pages 35 to 62 of the 2014 Annual Report of Fantastic Holdings Limited.