MN7241: Financial Statement Analysis (January Intake)

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  • Post category:Finance

Online Exam Brief (May 2021)

Module leaders: Dr Mahmoud Marzouk and Dr Silvia Pazzi

Please answer all four questions in this assessment brief. The wordcount for the text-based questions is given in each question. Please submit one single Word document.

Question 1                                                                                                                              [30 marks]

The Financial Statements for the year ended 31 December 2020 for Alfa Ltd and Beta Ltd, two companies in the same industry, are given as follows:

Income Statement (Statement of Profit or Loss)AlfaBeta
-Cost of goods sold2,300.002,200.00
Operating Profit475.00130.00
-Interest expenses135.0060.00
Profit before tax340.0070.00
-Tax expenses136.0028.00
Net profit204.0042.00
Balance Sheet (Statement of Financial Position)AlfaBeta
Non-current assets9,720.007,735.00
– Accumulated Depreciation2,250.001,800.00
Total Non Current Assets7,470.005,935.00
Current Assets
Trade receivables562.50562.50
Total Current Assets2,992.503,652.50
Total Assets10,462.509,587.50
Equity and Liabilities
Equity and liabilities
Contributed Equity4,500.004,500.00
Accumulated Retained Earnings1,250.001,500.00
Total Equity5,750.006,000.00
Non-current liabilities
Long-term loans3,322.502,362.50
Current liabilities
Trade payables715.00775.00
Other payables675.00450.00
Total Current Liabilities1,390.001,225.00
Total Liabilities4,712.503,587.50
Total Equity and Liabilities10,462.509,587.50
  1. Prepare a vertical common-size analysis of the income statement and balance sheet of the two companies.                                                                                                                                [10 marks]
  2. Calculate the relevant financial ratios to assess the efficiency of the two companies.  [5 marks]
  3. Prepare a report, based on the financial information provided, assessing the relative performance of the two companies.    (400-500 words)                                                          [15 marks]

Question 2                                                                                                                              [30 marks]

You are an analyst, and you wish to assess the impact of the new IFRS 16 (Leases) on company AB’s solvency. The Note to AB’s Financial Statements for the year 2017 shows the following table with the minimum lease payments:

Fiscal YearFinance LeasesOperating Leases
Present value16


  1. Restate the operating leases into finance leases. Assume the discount rate is equal to 5% and the rent expense under operating lease is equal to 40. In your computations and results keep two decimals. Show the workings, briefly explain the process, and provide a brief interpretation of the results.     (200 – 300 words)                                                                                                   [15 marks]
  2. Critically discuss the effect of the restatement on the company’s solvency and explain the reasons why the IASB developed a new Leases Standard (IFRS 16). (400-500 words)          [15 marks]

Question 3                                                                                                                              [20 marks]

  1. Explain how the cash flows statement is linked to the Income Statement (also called Statement of Profit and Loss) and the Balance Sheet (also called Statement of Financial Position). (400-500 words)                                    [15 marks]
  • Critically discuss the importance of the cash flows statement in assessing companies’ performance. (200-300 words)                                                                                    [5 marks]

Question 4                                                                                                                              [20 marks]

  1. Discuss the quality spectrum for assessing financial reporting quality. (400-500 words).                                                                                                                                                      [15 marks]
  • Discuss the conditions that are conducive to issuing low-quality, or even fraudulent, financial reports. (250-350).                                                                                                                      [5 marks]


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