Answer all the Questions.
Shaybah Plc
All values in SAR Millions
Income statement for the year ended 31st Dec 2022
2020 2021 2022
Turnover 786 841 900
Cost of Sales 503 563 630
Gross Profit 283 278 270
Admin Costs 109 122 137
Net Profit 174 156 133
Dividends 50 80 80
Retained Earnings 124 76 53
Statement of Financial Position as at 31st Dec 2022
2020 2021 2022
Non-Current Assets 477 832 890
Current Assets 262 281 300
Total Assets 739 1,113 1,190
Current Liabilities 154 192 93
Non-Current Liabilities 100 412 412
Ordinary Shares 350 350 350
Retained Profits 135 259 335
739 1,113 1,190
Sector average ratios:
Return on capital employed 19%
Net profit margin 20%
Current ratio 1.6 Times
Debt/equity ratio (book value basis) 48%
Return on equity 15%
5
Question 1
Required:
1.1 Calculate the following ratios for Madeira Plc:
Gross Profit Margin
Net Profit Margin
Net Asset Turnover
Receivable Days
Payable Days
Return on Capital Employed
Debt / Equity Ratio
Return on Equity (12 marks)
1.2 Comment on the financial performance of Shaybah Plc between the years 2020 and 2022 using the ratios above and any other financial measure you feel appropriate.
(10 marks)
1.3 In 2020 the share price of Shaybah was 20 SAR per share. Today the share price is 21 SAR per share. Critically evaluate if you believe the directors of Shaybah Plc are maximizing the wealth of shareholders. What other goals might the company consider.
(8 marks)
Question 2
2.1 Shaybah has an ambitious plan to invest 100 billion SAR in the next 30 years. Explain how the company might fund such an ambitious investment plan. You are required to evaluate the
benefits and drawbacks of equity finance and debt finance from the company’s perspective.
(10 marks)
2.2 Summarize the (theoretical) costs of each type of finance available to the company when funding its investment appraisal in the future. What are the relative costs of retained earnings compared with raising new finance via the debt and equity financial markets.
(10 marks)
Question 3
ZebraToon plc is looking to take on a new investment. The company will evaluate two mutually exclusive projects, whose details are given below. The company’s cost of capital is 12%.
SAR Millions Project A Project B
Initial Investment (150) (152)
Year 1 40 80
Year 2 50 60
Year 3 60 50
Year 4 60 40
Year 5 85 30
- Calculate the Payback period (4 marks)
- Calculate the Net Present Value (NPV) of both projects (6 marks)
- Calculate the Internal Rate of Return (IRR) of both projects (6 marks)
- Critically discuss the merits of each investment appraisal method, then discuss the result
of the evaluations you have made of the two projects and advise the company which project should be undertaken (9 marks)
Question 4
4.1 The fundamentals of finance are said to be the concept of ‘Risk and Return’ and secondly the ‘Time Value of Money’. Critically evaluate how investment appraisal techniques can take account of both fundamental theories to aid decision making
(10 marks)
4.2 Summarize the benefits of Leasing to the company when obtaining new fixed assets
(5 marks
