FIN630 Assignment # 2 Solution

In order to analyze the performance of ABC Company, following information has been
extracted from its financial statements.

Net profit after tax 500
Total assets 8000
Common stock
100,000@ Rs. 10= 1000
Retained earning 90
Current liabilities 25
Account receivables 50
Cost of goods sold 1800
Long term debt
Bond A
300@ Rs.1000=300
Bond B
200@ Rs.1000=200

1. You are required to calculate the following ratios:
• ROA (Return on assets)
• ROE (Return on Equity)
• EPS (Earning per share)
2. Calculate the value of bond A using 15% coupon with 20-year maturity, paying 40
semiannual payments of Rs. 75 each, assuming required rate of return of 10%
3. Calculate the value of bond B using 11% coupon with 10-year maturity, paying 40
quarterly payments of Rs. 27.5 each, assuming required rate of return of 16%

Idea Solution:-

ROA = Net income Margin x Turnover
Net income margin = Net Income / sale or COGS x 100
Turnover = Sale or COGS / Total Asset
and
ROE = ROA / Leverage
Leverage = Total Assets / Share Holder Equity
and
EPS = Profit available for share holder / Average common shares
outstanding

these are formula from which we extract Answers