Attached as Appendix 1 are the financial statements for Super Cheap Auto Limited, a public company...

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Attached as Appendix 1 are the financial statements for Super Cheap Auto Limited, a public company in Australia which operates two chains of retail shops which sell equipment and accessories for motor cars, boats and camping. Most sales are cash sales to retail consumers.Using the information provided in these financial statements answer the following questions.Note that the earnings per share are provided on the income statement.Please also note the following data;Dividends declared in 2006 were 8 cents per share and in XXXXXXXXXXcents per share. 	Calculate the Current ratio and the Quick ratio for 2007. Comment on the liquidity of this company.  For comparison purposes, other firms in this industry sector have an average Current ratio of 1.76 and an average Quick ratio of
	
Document Preview: ASSIGNMENT 1 (20 MARKS)Question 1					Total marks for Q1. (15 marks)Attached as Appendix 1 are the financial statements for Super Cheap Auto Limited, a public company in Australia which operates two chains of retail shops which sell equipment and accessories for motor cars, boats and camping. Most sales are cash sales to retail consumers.Using the information provided in these financial statements answer the following questions.Note that the earnings per share are provided on the income statement. Please also note the following data; Dividends declared in 2006 were 8 cents per share and in XXXXXXXXXXcents per share.Calculate the Current ratio and the Quick ratio for 2007. Comment on the liquidity of this company. For comparison purposes, other firms in this industry sector have an average Current ratio of 1.76 and an average Quick ratio of 0.78.									3 marksFrom the information provided about dividends and earnings and from the Cash flow statement and Balance sheet, comment on long term and short sources of finance that Super Cheap Auto has used to expand the business from 2006 to 2007.3 marksCalculate a ratio that will tell you how many times a year Super Cheap Auto turns over its inventory in 2007 (or, calculate the ratio that tells you the number of days it takes to turn over inventory). Comment on this aspect of working capital management.3 marksDo you think Super Cheap should borrow more money to expand faster?Why? Explain you reasoning.3 marksAssuming a share price of $4.50, calculate a Price Earnings (PE) ratio and a Dividend Yield ratio for Super Cheap Auto. Interpret these ratios and comment on the value of shares in Super Cheap Auto, given that sector average PE is 16.7 and sector average dividend yield is 3.7%. What does this tell us about the market’s expectations about growth in Super Cheap Autos share price? 3 marks Question 2					Total marks for Q5. (5 marks)a) List 4 different types (groups) of people who...

Robert · Accepted Answer

1 
 
Question 1 
a) Current Ratio (2007) = 180742000/105064000 = 1.72 
Quick Ratio (2007) = (180742000 – 159880000)/105064000 = 0.199 
It is apparent that the liquidity position is inferior when the industry average is taken into 
consideration. Of particular concern is the quick ratio which is abysmally low at around 0.2 
in comparison to the industry average of 0.78. Clearly, the inventory levels for the company 
are very high which amounts to grave concern for short term liquidity (Arnold, 2005). 
b) There has been an increase in the dividends paid from 8 cents in 2006 to 10.5 cents in 
2007. Also, the earnings for the company has increased significantly in 2007 as compared 
to the previous year. Also from the balance sheet, it is apparent that no equity has been 
issued but the short term borrowings have shown some increase. Hence, it would be 
appropriate to conclude that short term source of finance has been borrowings while the 
long term source of finance would be internal accrual particularly in the form of retained 
earnings  (Payne and Gullifer, 2015).
c) Inventory turnover = Cost of goods sold/Average Inventory 
Cost of goods sold (2007) = $376,733,

Attached as Appendix 1 are the financial statements for Super Cheap Auto Limited, a public company in Australia which operates two chains of retail shops which sell equipment and accessories for motor...

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