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MGT201 1st ASSIGNMENT LAST DATE NOVEMBER 27th 2015.

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 Answer Part 1: Fahad stitching unit Balance sheet As on 31st December 2014 Assets Rs. Liabilities and Owner's Equity Rs. Cash(W-5) 50,000 Notes and Payables 100,000 Accounts Receivable(W-4) 50,000 Long term debt (W-1) 100,000 Inventory(W-3) 100,000 Common Stock 100,000 Plant and Equipment(Balance Figure) 200,000 Retained Earnings 100,000 Total Assets(W-2) 400,000 Total Liabilities and shareholder's Equity(W-2) 400,000

Workings:

W-1:

Long-term debt/ Equity = 0.5

Long-term debt/200,000=0.5

Long-term debt = 100,000

W-2:

Now,

Total liabilities and shareholders' equity = 400,000

So, Total assets = 400,000

W-3:

Assets turnover ratio is:

Sales/ Total assets = 2.5

Sales/400,000=2.5

Sales = 1,000,000

Since Gross Profit Margin is 10%

So,

CGS=90% of sales

=900,000

Now, Inventory turnover ratio is

Cost of goods sold/ Inventory = 9

900,000/Inventory =9

900,000/9= Inventory

100,000= Inventory

W-4:

Average Collection period is:

Accounts Receivable x 360 days/Sales = 18 days

Accounts Receivable x 360 days/100,000 = 18 days

Accounts Receivable = 50,000

W-5:

Acid test Ratio is:

Cash + 50,000/100,000 = 1

Cash +50,000=100,000

Cash =50,000

Both Balance Sheet and Income Statement are important from investment point of view.

Investors have three points in their mind:

1. Revenue- How much revenue a company is earning in a given period?
2. Cash Flow- How much Cash company has in a given period?
3. Debt- How much company owes?

Revenue is taken from Income statement and debt from Balance sheet.

Investors have to make themselves sure that their investment will result in gain. Balance sheet shows Financial Position of company at a given point of time, while Income statement shows activity for the period related to income and expenses of company.

If liabilities are more or company is facing loss it will have affect on investment.

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