Faculty of Business Studies

TMA BE231

Financial Management

Second Semester 2013- 2014

This Tutor-Marked Assignment (TMA) draws mainly on Chapters 1 & 3 of Atrill, Peter "Financial Management for Decision Makers" and other resources. It consists of two questions and accounts for 20% of the total grade assigned to the course. This assignment will be graded out of 100 marks, 30% for the first question, 50% for the second one and the remaining 20% will be distributed equally among the following criteria: presentation of ideas and organization of the answer, adherence to specified word count, proper referencing and use of the E-library.

In this TMA, you are expected to demonstrate your knowledge and understanding the three main forms of the firm's ownership as well as the three main activities of the firm that generate funds. It is also expected, in your answer, to show your critical and analytical skills of how financial analysis serves financial analysts to make intelligent decisions. Your answer should be within the specified range of words, and you must follow the Harvard Style of Referencing. You are expected to present a well-structured and organized piece of work that is of your own. Plagiarism will not be tolerated, and plagiarized work will receive 0 marks.

QUESTION 1

Answer the following question using an essay format with a maximum that ranges between 300 to 500 words for each question: (30 marks, 15 marks for each sub-question):

a)There are three main forms of firm's ownership, sole proprietorships, partnerships and corporations in business organizations. Identify and explain these forms in private firms.

b)There are three types of activities (operating, financing and investing)generate funds to the organization. Identify and explain with examples these activities in private firms

QUESTION 2

The following Balance Sheet and Income Statement are taken from the accounts of Gulf Corporation for wholesale carpet business. Answer the following question with establishing table for comparison between the financial position of the company in 2012 and 2013 and a report for your decision

Required

  1. Use the above Income Statement and the Balance Sheet to assess:
  2. Liquidity ratios
  3. Gearing ratio
  4. Efficiency ratios
  • Inventory turnover period
  • Settlement period for trade receivables
  • Profitability ratios
  • Return on ordinary shareholders' funds
  • Return on capital employed
  • Operating profit margin
  • Gross margin profit
  • Investment ratio
  • Earnings Per Share (EPS)
  1. The company is applying for a bank loan. The bank manager seeks your advice on whether to lend the company in a form of a report. Base your report on the above results.

Statements of Financial Position (balance sheets) of Gulf Cooperation for wholesale carpet business as at 31 March 2013
2013 / 2012 / Assets
Non-current assets
Plant and equipment (at cost less depreciation)
8000 / 5000 / Land and buildings
4000 / 3000 / Fixtures and fittings
12000 / 8000
Current assets
1000 / 500 / Inventories
1500 / 1000 / Trades receivable
500 / 500 / Cash at banks
3000 / 2000
15000 / 10000 / Total Assets
Equity and liabilities
Equity
5000 / 4000 / $ 0.50 ordinary shares
3000 / 2000 / Retained earnings
8000 / 6000
Non-current liabilities
3000 / 2000 / Borrowing
Current liabilities
2500 / 1500 / Trade payables
1000 / 500 / Taxation
500 / 0 / Short-term borrowings (all bank overdraft)
4000 / 2000
15000 / 10000 / Total Equity and Liabilities
Profit and Loss Accounts for the year ended 31 March 2013
2013 / 2012
8000 / 5000 / Sales
6000 / 3000 / Cost of sales
2000 / 2000 / Gross profit
1000 / 1000 / Operating expenses
1000 / 1000 / Operating Profit
200 / 250 / Interest payable
800 / 750 / Profit before tax
100 / 100 / Taxation
700 / 650 / Profit for the year

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