Analyse the Performance of a CompanySuppose you have invested $50,000 each in two pharmaceutical companies – Luvin Limited and Moon Limited – five years ago. Both the companies have the same operational scale. You want to understand the operating performance of the two companies. While browsing the income statement of the two companies, you find the following information: Luvin LimitedMetricAmount (in $)Sales revenue76,000COGS23,000Variable Margin53,000Fixed Cost3,000EBITDA50,000Amortisation10,000EBIT40,000Moon LimitedMetricAmount (in $)Sales revenue71,000COGS14,000Variable Margin57,000Fixed cost4,000EBITDA53,000Amortisation50,000EBIT3,000 Additionally, it is given that Luvin Limited had filed for a patent for ₹2,00,000, 20 years ago and Moon Limited had filed for a patent for ₹10,00,000, 20 years ago. Determine which company’s cash operating performance is better.Note: The patent expense appears as amortisation in the income statement.Luvin Limited Moon Limited

[The following information applies to the questions displayed below.]Summary information from the financial statements of two companies competing in the same industry follows.  Barco Company Kyan Company   Barco Company Kyan CompanyData from the current year-end balance sheets     Data from the current year’s income statement    Assets     Sales $ 780,000 $ 907,200Cash $ 19,500 $ 33,000 Cost of goods sold 590,100 630,500Accounts receivable, net 36,400 59,400 Interest expense 8,000 13,000Merchandise inventory 84,240 130,500 Income tax expense 14,992 25,045Prepaid expenses 5,600 7,500 Net income 166,908 238,655Plant assets, net 320,000 305,400 Basic earnings per share 4.17 5.79Total assets $ 465,740 $ 535,800 Cash dividends per share 3.74 4.03Liabilities and Equity     Beginning-of-year balance sheet data    Current liabilities $ 71,340 $ 103,300 Accounts receivable, net $ 30,800 $ 55,200Long-term notes payable 78,800 105,000 Merchandise inventory 63,600 105,400Common stock, $5 par value 200,000 206,000 Total assets 448,000 392,500Retained earnings 115,600 121,500 Common stock, $5 par value 200,000 206,000Total liabilities and equity $ 465,740 $ 535,800 Retained earnings 98,292 48,8812a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on equity. Assuming that each company’s stock can be purchased at $90 per share, compute their (e) price-earnings ratios and (f) dividend yields.2b. Identify which company’s stock you would recommend as the better investment.

Analyse the Performance of a CompanyThe following data is available for two companies A and B:Company A Metric  Previous Year (Amount in $ million)Current Year (Amount in $ million)Sales revenue500 425 Cost of goods sold260 320 Variable Margin240 105 Fixed cost25 25         Company BMetric Previous Year (Amount in $ million)Current Year (Amount in $ million)Sales revenue300 195 Cost of goods sold110 115 Variable Margin190 80 Fixed cost15 15         Based on the given data, which of the following statements is true?Company A has significantly performed better than company B because it has a higher variable margin for the given two years.The absolute variable margins of the two companies are not directly comparable.Company B has a much better operating performance as it has a lower fixed cost than company A.

Link Between Financial StatementsThe following information is available for a company.  Income Statement (In ₹ million)Sales revenue2Operating expenses0.45 Operating profit 1.55 Interest expenses 0.22Taxes 0.28Net profit? Cash Flow Statement (In ₹ million)Cash in the beginning 0.75 Cash generated during the year?Cash at the end 1.52

The following tables provide information regarding two companies. Metrics Company A (in $ million) Company B (in $ million)Sales revenue 4 25Cost of goods sold 0.9 3.2Operating working capital 0.25 4 Company A (all figures in $ million)Fixed assets2.5Owners equity3Cash2.25Short-term debt0.5Accounts receivable0.5Long-term debt1.5Inventory0.75Accounts payable1 Company B (all figures in $ million)Fixed assets11Owners equity13Cash4Short-term debt2.5Accounts receivable2Long-term debt3.5Inventory3Accounts payable1 Assume 360 operating days in a year.Question 2/2MandatoryInterpreting Activity RatiosDetermine which of the following statement is true? (Note: More than one option may be correct.)For company A, accounts receivable of $0.5 million represents 45 days of sales revenue outstanding Both the company pay their supplier 300 days after deliveryCompany B’s days inventory outstanding (DIO) is greater than company A’s DIOFor company B, accounts receivable of $2 million represents 45 days of sales outstanding

Performance MetricTwo companies have the same operational prospect but have a significant difference in their depreciation expense. Which of the following would be the most appropriate metric to compare the cash-operating performance of the two companies?EBITEBITDAVariable marginProfit after tax