Acc501 Assignment No:1 Solution 2011

Question No:1
Using the audited financial statements with accompanying information for the year ended June 30,
2010 provided in the Annual Report 2010 of The Crescent Textile Mills, you are required to conduct
“Time-series Analysis” of solvency measures of the company by computing and interpreting the results
of the following ratios for the years 2009 & 2010:
1. Total Debt Ratio
2. Debt-Equity Ratio
3. Times Interest Earned (TIE) Ratio
Solution:
The formulas are:
Total Debt Ratio = (Total Assets- Total Equity)/ Total Assets
Debt-Equity Ratio= Total Debt/ Total Equity
Times Interest Earned (TIE) Ratio = Earning before the tax and interests/Interest
The data Extracted from the balance sheet of annual report of Crestex:
Total Equity is (2010 = 2,672,439) (2009 = 2,261,837)
Total Assets are(2010 = 10,988,698) (2009 = 10,815,934)
Interest is (2010 = ---) (2009 = 22,081)
Earning before the tax and interests (2010 = 463,491) (2009 = 238,518)
Current Liabilities (2010 = 6,010,688) (2009 = 5,805,685)
Current Assets (2010 = 4,202,903) (2009 = 4,085,672)
Inventory (2010 = 1,047,150) (2009 = 940,421)
Cash (2010 = 16,419) (2009 = 18,931)
Calculation:
For the year 2009:
Total Debt Ratio = Total Assets- Total Equity/ Total Assets
= (10,815,934 - 2,261,837)/10,815,934
= 8,554,097 / 10,815,934
= 0.79
Debt-Equity Ratio= Total Debt/ Total Equity
= 0.79 / 2,261,837
= 3.4921007
Times Interest Earned (TIE) Ratio = Earning before the tax and interests/Interest
= 238,518/ 22,081
= 10.802
For the year 2010:
Total Debt Ratio = (Total Assets- Total Equity)/ Total Assets
= (10,988,698 - 2,672,439) / 10,988,698
= 8,316,259 / 10,988,698
= 0.756
Debt-Equity Ratio = Total Debt/ Total Equity
= 0.756 / 2,672,439
= 2.8281007
Times Interest Earned (TIE) Ratio = Earning before the tax and interests/Interest
= 463,491 / 22,081
= 20.99
Question No.02
Using the audited financial statements with accompanying information for the year ended June 30,
2010 provided in the Annual Reports 2010 of The Crescent Textile Mills and Kohinoor Textile Mills, you
are required to conduct “Cross company Analysis” of liquidity measures of the companies by computing
and interpreting the results of the following ratios for Crestex & KTML for the year 2010 only:
1. Current Ratio
2. Quick Ratio (Acid-test Ratio)
3. Cash Ratio
Solution:
The formulas are:
Current Ratio = Current Assets/ Current Liabilities
Quick Ratio (Acid-test Ratio) = (Current Assets- Inventory)/ Current Liabilities
Cash Ratio = Cash/ Current Liabilities
The data Extracted from the balance sheet of annual report of CTM:
Total Equity is (2010 = 2,672,439) (2009 = 2,261,837)
Total Assets are (2010 = 10,988,698) (2009 = 10,815,934)
Interest is (2010 = ---) (2009 = 22,081)
Earning before the tax and interests (2010 = 463,491) (2009 = 238,518)
Current Liabilities (2010 = 6,010,688) (2009 = 5,805,685)
Current Assets (2010 = 4,202,903) (2009 = 4,085,672)
Inventory (2010 = 1,047,150) (2009 = 940,421)
Cash (2010 = 16,419) (2009 = 18,931)
The data Extracted from the balance sheet of annual report of KTM:
Current Liabilities are (2010 = 8,169,138) (2009 = 6,762,527)
Current Assets are (2010 = 5,903,185) (2009 = 4,530,222)
Inventory is (2010 = 2,393,113) (2009 = 1,779,826)
Cash (2010 = 78,851) (2009 = 80,297)
Calculation:
For CTM of the year 2010:
Current Ratio = Current Assets/ Current Liabilities
= 4,202,903 / 6,010,688
= 0.699
Quick Ratio (Acid-test Ratio) = (Current Assets- Inventory)/ Current Liabilities
= (4,202,903 - 1,047,150) / 6,010,688
= 3,155,753 / 6,010,688
= 0.525
Cash Ratio = Cash/ Current Liabilities
= 16,419 / 6,010,688
= 0.002731
= 2.731103
For KTM of the year 2010:
Current Ratio = Current Assets/ Current Liabilities
= 5,903,185 / 8,169,138
= 0.722
Quick Ratio (Acid-test Ratio) = Current Assets- Inventory/ Current Liabilities
= (5,903,185 - 2,393,113) / 8,169,138
= 3,510,072 / 8,169,138
= 0.429
Cash Ratio = Cash/ Current Liabilities
= 78,851 / 8,169,138
= 0.00952
= 9.652103