Question

Sales 5000000 Cost of sales 70% of sales Cash 225000 Accounts receivable 400000 Inventory 375000 Non-Current...

Sales

5000000

Cost of sales

70% of sales

Cash

225000

Accounts receivable

400000

Inventory

375000

Non-Current Assets

1500000

Accounts Payable

220000

Bank overdraft

200000

Long term debt

800000

Total Operating Epenses

600000

Finance costs

200000

Ordinary shares issued 150 000 tax rate 30%

EPS for the year ended 30 May 2020

FLM at end of year was

Return on ordinary shareholders equity was

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Answer #1

EBIT=Sales-Cost of sales-total operating expenses=5000000-(70%*5000000)-600000=900000

Earnings before taxes=EBIT-Finance cost=900000-200000=700000

Net income=Earnings before taxes*(1-tax rate)=700000*(1-30%)=490000

1. EPS=Net income/Total shares=490000/150000=3.27

2. Financial Leverge multiplier=Total assets/Shareholder's equity

Total assets=Cash+Accounts receivable+Inventory+non current assets=225000+400000+375000+1500000=2500000

Shareholder's equity=Total assets-Total liabilities

Total liabilities=Accounts payable+Bank overdraft+Long term debt=220000+200000+800000=1220000

Sahreholder's equity=2500000-1220000=1280000

Financial leverage multiplier=2500000/1280000=1.95

3. Return on equity=Net income/Sahreholder's equity=490000/1280000=38.28%

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