Acc501 1st assignment solution spring 2012

Question No.1

ABC Company Limited and XYZ Company Limited are involved in the manufacturing of Leather products. Following are the balance sheets of both the companies for the year 2010.

Solution:-

                   

Particular	ABC Company	XYZ Company
Cash	2.5%	14.2%
Account Receivable	5.1%	19.15%
Inventory	11.7%	31.9%
Net Plant and Equipment	81%	34.75%
Account Payable	9.3%	5.67%
Notes Payable	6.85%	7.1%
Long-Term Debit	15.69%	35.5%
Common Stock and Paid Surplus	15.0%	39.0%
Retain Earning	53.1%	12.76%

COMPARISON OF LIQUIDITY POSITION

ABC COMPANY	ABC Company Position is Good Because ABC Company Has More Current Assets than Current Liabilities
XYZ COMPANY	XYZ Company Liquidity Position is Too Much Because Current Assets are 5 times of Current Liabilities

COMPARISION OF LEVERAGE POSITION

ABC COMPANY	Leverage Position of ABC Company Shows Company is Less Financed with Debits.
XYZ COMPANY	Leverage Position of XYZ Company Shows Company is more Financed with Debits.

Q 2:

Solution

Return on Equity which is also called DU-Point Model can be calculated by following formula

ROE (DU-POINT MODEL) =  Net income/Net sales*Net sales/Total Assets*Total Assets/Total Equity

Current Year

ROE (DU-Point Model)           

=200,0000/5352000*5352000/10253000*10253000/6582000

= 200,0000/6582000

=30.39%

ROE (DU-Point MODE) 30.39%

Previous Year

ROE (DU-POINT MODEL) = Profit Margin * Total Assets Turn over * Financial Leverage

ROE (D_-Point Model) = 0.52 * 0.50 * 1.55

ROE (DU-Point Model) = 40.3%

Reason

ROE is Unsatisfactory for the current year because for current year profit margin is less which is 37%