50.1K

Verified Solution

Link Copied!

Financial Statement Analysis

You are an analyst for an investment company, and your job is to identify quality businesses and to make recommendations on those businesses you consider to be worthwhile investment decisions.

You have just been provided with the financial statements for Organica Ltd, a large Australian based confectionery company.

Organicas shares are currently trading at $5.00 per share.

30 June 2020 financial statements, along with calculated key ratios, are provided below:

REQUIRED:

1. Undertake an analysis of Organicas financial statements using the information provided. Your analysis should include commentary on Organicas profitability, liquidity and solvency.

Based on your findings, make a recommendation on whether your employer should invest in Organica, including reasons for your recommendation.

2. Comment on the adequacy (or otherwise) of the information supplied to conduct your analysis. What additional information (if any) do you consider might have improved the quality of your analysis, and if so, how.

Organica Ltd - Balance Sheet as at 30 June 2020 2020 ($ 000's) 2019 ($ 000's) Assets Current Assets Cash Accounts Receivable Inventory Prepaid Insurance Total Current Assets Property, Plant and Equipment Intangibles 20,000 60,000 210,000 10,000 300,000 440,000 200,000 40,000 90,000 150,000 30,000 310,000 400,000 170,000 Total Assets 940,000 880,000 Liabilities Current Liabilities Accounts Payable Notes Payable Total Current Liabilities Bonds Payable Total Liabilities 120,000 50,000 170,000 560,000 730,000 100,000 50,000 150,000 560,000 710,000 Shareholder's Equity Issued Equity (Average # 200,000 shares) Retained Earnings Total Shareholder's Equity 150,000 60,000 210,000 150,000 20,000 170,000 Total Liabilities and Shareholder's Equity 940,000 880,000 Organica Ltd - Income Statement for the Financial Year ending 30 June 2020 ($ 000's) Sales Cost of Goods Sold Gross Profit Administrative Expenses Depreciation Expense Total Operating Expenses Operating Income Interest Expense Net Profit Before Tax Income Tax Expense Net Profit After Tax 500,000 300,000 200,000 50,000 30,000 80,000 120,000 20,000 100,000 50,000 50,000 Organica Ltd - Summary of Key Financial Ratios 2020 Key Ratio Formula Profit Margin Return on Equity Return on Assets Earnings per Share Price to Earnings Current Quick Receivables Turnover Inventory Turnover Debt to Assets Debt to Equity Times Interest Earned Net Profit After Tax (NPAT) / Net Sales NPAT/ Average Shareholder's Equity NPAT / Average Total Assets NPAT / Average No. Ordinary Shares Current Share Price / Earnings per Share Current Assets / Current Liabilities (Cash + AR) / Current Liabilities Net Credit Sales / Average Accounts Receivable Cost of Goods Sold / Average Inventory Total Liabilities / Total Assets Total Liabilities/Total Shareholder's Equity (NPAT + Income Tax Expense + Interest Expense) / Interest Expense Ratio Calculation for Nella's 10.0% 26.3% 5.5% $0.25 20.0 1.76 0.47 6.67 1.67 0.78 3.48 6.0

Answer & Explanation Solved by verified expert

See Answer