APPLIED CORPORATE FINANCE (MG 528: MBA)

ASSIGNMENT – 1

Salman Hardware Stores (“SHS”) is a medium sized family business located in Lahore. SHS has been in
business for the past some twenty years. The firm’s balance sheets and income statements for the past
four years are given below.

SHS Balance Sheets: 2015-2018

(PKR millions) 2015 2016 2017 2018
Cash 35 40 40 45
Accounts receivable 110 135 165 211
Inventory 215 265 340 418
Prepaid expenses 30 30 30 28
Current assets 390 470 575 702
Property, plant & equipment 300 310 325 350
Total assets 690 780 900 1052
Current portion of LT Debt 10 10 10 10
Bank loan 300 325 350 350
Accounts payable 80 109 144 223
Accruals 25 20 25 25
Current liabilities 415 464 529 608
Long-term debt 120 110 100 90
Total liabilities 535 574 629 698
Contributed capital 75 75 75 75
Retained earnings 80 131 196 279
Total debt and equity 690 780 900 1052

SHS Income Statements: 2015-2018

(PKR millions) 2015 2016 2017 2018
Sales 1,120 1,400 1,740 2,200
Opening Inventory 172 215 265 340
Purchases 906 1,131 1,416 1,773
Closing Inventory 215 265 340 418
COGS 863 1,081 1,341 1,695
Gross Profit 257 319 399 505
Operating expenses 171 210 267 344
EBIT 86 109 132 161
Interest Expense 30 31 32 34
EBT 56 78 100 127
Income Tax@35% 20 27 35 44
Net Earnings 36 51 65 83
Questions

1. What is the year-on-year growth and average annual growth in sales for SHS from 2015 to
2018? (4)

2. Prepare a Sources and Uses of Funds Statement for 2017-2018, analyse it, and provide a
comprehensive picture on how SHS has financed its rapid sales growth over the year. What
line items would you like to probe further and why? (12)

3. Prepare combined common-size and base-year balance sheets and income statements for
SHS, analyse them and write a concise note on your findings. (12)

4. Conduct comprehensive financial ratio analysis on SHS data and write a concise note on
your findings covering each block of important ratios. (12)

5. Summarise the firm’s cash conversion cycle in a tabular format below. Advise and discuss if
there is any room for further improvement. (10)

SHS Cash Conversion Cycle (2017-2018)

Purchase and collection Days
Days held in inventory
Days held in receivables
Total days: from receipt of inventory until cash collection X
Payment and financing
Days in payables
Days of other financing
Total days X

SUBMISSION: WEDNESDAY, 18 SEPTEMBER 2019, 4:00 PM, SECRETARY TO HOD