Exercises/summary Financial Management

Exercises
Financial Management

, Exercises – Financial Management


Part I a: Introduction to Financial Statements


Extra exercise
Thomas More Land, a Belgian outdoor dance event company, compiles his balance sheet based on
the following possessions and debt: equity €20.000, cash €1.624.244, short term receivables
€15.950.817 of which A/R €8.109.078, tangible fixed assets €9.594.051, financial fixed assets 17.842,
short term liabilities of which A/P €13.410.796 and bank loans €4.200.000 and other liabilities
€13.157.189, intangible fixed assets €10.250.872, reserves €6.614.990, Prepaid expenses/Accrued
revenues (Assets) €303.869 and Accrued liabilities/Unearned revenues (Liabilities) €338.720.


a) Draw a balance sheet.

In 2018 Thomas More Land generated €106.419.860 in revenues. The income statement contains
€81.914.090 for trading goods and €7.200.239 for services and other goods. Besides these costs, there
are payroll costs, depreciation costs and other costs for respectively €5.043.416, €4.589.785 and
€3.789.153. Financial revenues amount to €94.912. The firm has financial costs for an amount of
€395.954. The tax rate is 30%.

b) Calculate the 2018 result
c) Calculate and discuss the liquidity, profitability and solvency for Thomas More Land.


a) Balance Sheet – Thomas More Land
ASSETS:

Category Amount (€)
Fixed Assets
- Tangible Fixed Assets €9.594.051
- Intangible Fixed Assets €10.250.872
- Financial Fixed Assets €17.842
Current Assets
- Cash €1.624.244

- Short-term Receivables €15.950.817
-- of which A/R € (8.109.078)

- Prepaid Expenses/Accrued Revenues € 303.869
Total Assets € 37.741.695




2

,LIABILITIES & EQUITY:

Category Amount (€)
Equity
- Capital 20.000
- Reserves 6.614.990
Non-current Liabilities
- (None reported) -
Current Liabilities
- Accounts Payable (A/P) 13.410.796
- Bank Loans 4.200.000
- Other Liabilities 13.157.189
- Accrued Liabilities/Unearned Rev. 338.720
Total Liabilities + Equity 37.741.695

Balanced sheet: Assets = Liabilities + Equity


b) Income Statement – 2018 Result – Net profit


Revenues:
• Total Revenues = €106.419.860


Operating Costs:
• Trading Goods = €81.914.090
• Services & Other Goods = €7.200.239
• Payroll = €5.043.416
• Depreciation = €4.589.785
• Other Operating Costs = €3.789.153


Total Operating Costs = €102.536.683


Operating Profit (EBIT):
• = Revenue – Operating Costs
• = €106.419.860 – €102.536.683
• = €3.883.177


Financial Result:
• Financial Revenues = €94.912
• Financial Costs = €395.954
• Net Financial Result = €94.912 – €395.954 = –€301.042




3

, Profit Before Tax (EBT):
• = EBIT + Financial Result
• = €3.883.177 – €301.042
• = €3.582.135


Taxes (30%):
• = 30% of €3.582.135 = €1.074.641


Net Profit (2018 Result):
• = EBT – Taxes
• = €3.582.135 – €1.074.641 = €2.507.494




c) Liquidity, Profitability & Solvency


Liquidity Ratios


Current Ratio = Current Assets / Current Liabilities
• = (€1.624.244 + €15.950.817 + €303.869) / (€13.410.796 + €4.200.000 + €13.157.189 +
€338.720)
• = €17.878.930 / €31.106.705 = 0.57


Interpretation: A current ratio below 1 indicates poor liquidity –> the company may struggle to meet
short-term obligations.


Profitability Ratios


Net Profit Margin = Net Profit / Revenue
• = €2.507.494 / €106.419.860 = 2.36%


Return on Assets (ROA) = Net Profit / Total Assets
• = €2.507.494 / €37.741.695 = 6.64%


Return on Equity (ROE) = Net Profit / Equity
• = €2.507.494 / (€20.000 + €6.614.990) = €2.507.494 / €6.634.990 = 37.8%


Interpretation: The company has a strong ROE and moderate ROA, but a relatively low profit margin.




4