Financial Statement Analysis

Final Assessment
ACT 450- Financial Statement Analysis– Spring 2020 P a g e 2 | 3
QUESTION 1) (30 pts) Using the below financial statements and additional information given for Company
ABC,
a) Using Discounted Cash Flows method, calculate the equity value as of June 1, 2020. (25 pts)
b) What would you suggest to the investors of ABC? BUY additional shares, HOLD the shares on hand
or SELL the shares on hand? Why? (5 pts)
Fiscal year 2019A 2020E 2021E 2022E 2023E 2024E
Balance sheet (KWD thousand)
Operating working capital 17,669.5 18,278.6 19,900.5 21,840.4 24,461.3 26,907.4
Net non-current operating
assets 101,744.8 107,640.5 119,610.0 132,901.2 148,849.4 163,734.3
Investment assets 5,288.5 7,939.2 8,913.7 9,990.8 11,189.7 12,308.7
= Business assets 124,702.8 133,858.3 148,424.2 164,732.5 184,500.4 202,950.4
Debt 73,146.8 77,236.2 85,640.8 95,050.6 106,456.7 117,102.4
Shareholders’ Equity 51,556.0 56,622.1 62,783.4 69,681.8 78,043.7 85,848.0
= Debt + Shareholders’ Equity 124,702.8 133,858.3 148,424.2 164,732.5 184,500.4 202,950.4
Income statement (KWD
thousand) 2019A 2020E 2021E 2022E 2023E 2024E
Sales 184,632.1 207,296.4 232,344.8 260,226.2 286,248.8 309,148.7
Net operating profit after tax 24,186.8 29,228.8 34,387.0 36,431.7 37,212.3 37,097.8
+ Net investment profit after tax 317.6 356.5 399.6 447.6 492.3 531.7
= Net business profit after tax 24,504.4 29,585.3 34,786.7 36,879.3 37,704.7 37,629.6
– Net interest expense after tax -1,390.3 -1,712.8 -2,091.1 -2,661.4 -3,278.9 -3,794.1
= Net profit 23,114.1 27,872.5 32,695.6 34,217.8 34,425.8 33,835.5
E = estimated
A= Actual (Real)
Additional information:
1) Cost of debt is 15%
2) Cost of equity is 25%
3) Number of shares is 100 million.
4) Assume that at the end of 2024 company owners will sell the company’s assets with their book
value and will pay all debt on the balance sheet. Hint: The remaining cash on hand can be
considered as the terminal value.
5) Boursa price per share is 720 fils on June 1, 2020.
QUESTION 2) (20 pts) Using the 2019 annual financial report of Integrated Holding Company, provide 4
red flags, and explain each briefly. (5 pts, 150 words each)
2019 annual financial report of Integrated Holding Company is available at
https://cis.boursakuwait.com.kw/Portal/FData/824_BL_2019_9_E_2432020113251163.pdf
Types of red flags are available in your textbook – Chapter 3.
Final Assessment
ACT 450- Financial Statement Analysis– Spring 2020 P a g e 3 | 3
QUESTION 3) (20 pts) Refer to the Lufthansa example in your textbook (page 123-124 and 125) on asset
depreciation estimates, what adjustments would be required if Lufthansa’s aircraft depreciation was
computed using an average life of 25 years and salvage value of 5 percent (instead of reported values of
12 years and 15 percent)? Show the adjustments only to the 2011 balance sheet. (Note: I want you to
follow the same (exactly the same) methodology your book used)
QUESTION 4) (10 pts) ABC Company and XYZ Company are operating in the same sector. They are also
similar in terms of their size. Using the below information please evaluate both companies’ liquidity and
explain which is better? (300 words)
QUESTION 5) (20 pts) Freshman Company and Graduates Company are operating in the same sector.
Freshman was established in 2016 and Graduates in 2010. Both company’s cost of debt is 5% as of
December 31, 2018.
a) Comment on the asset efficiency and profitability of both companies and indicate which is better.
(10 pts, 150 words) (Note: Do not tell me only this increased that decreased, I want a nice
paragraph)
b) Comment on the success of debt management and riskiness of both companies.(10 pts, 150
words)
NOTE:
1) DO NOT UPLOAD COVER AND QUESTIONS
2) PLEASE UPLOAD YOUR ANSWERS ONLY.
3) FOR QUESTION 1, 3 and 5 ADD ALL CALCULATIONS. OTHERWISE YOUR ANSWERS WILL NOT BE
GRADED.
4) PLEASE BE CAREFUL WITH SIMILARITIES. PLAGIARISM WILL NOT BE TOLERATED.
2018 2017 2016 2018 2017 2016
ABC XYZ
2018 2017 2016
Freshmen Inc. Graduates Inc.
2018 2017 2016