PArT 1: INTrODuCTION
SMG Industries balance sheets ($ in millions)Assets 30 June 2016 30 June 2015Liabilities and
shareholders’ equity 30 June 2016 30 June 2015
Cash $ 3,500 $ 3,000 Accounts payable $ 3,600 $ 3,500
Marketable
securities3,800 3,200 Notes payable 4,800 4,200Accounts receivable 4,000 3,800 Accruals 1,200 1,300
Inventories 4,900 4,800 Total current liabilities $ 9,600 $ 9,000
Total current assets $16,200 $14,800 Long-term debt $ 6,000 $ 6,000
Gross fixed assets $31,500 $30 100 Ordinary shares $11,000 $11,000
Less: Retained earnings 6,400 5,800
Accumulated
depreciation14,700 13,100 Total shareholders’ equity $17,400 $16,800Net fixed assets $16,800 $17,000 Total liabilities and
shareholders’ equity$33,000 $31,800
Total assets $33,000 $31,800Income statement data (2016, $ in millions)
Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 4,500
Taxes 1,300
Net profits after taxes 2,400ANALYSING FINANCIAL PERFORMANCE USING RATIO ANALYSIS
P2-2 Manufacturers Bank is evaluating Aluminium Industries Pty Ltd, which has requested a $3-million
loan in order to assess the company’s financial leverage and risk. On the basis of the debt ratios for
Aluminium, along with the industry averages and Aluminium’s recent financial statements (which
follow), evaluate and recommend appropriate action on the loan request.Aluminium Industries Pty Ltd
Income statement
for the year ended 30 June 2016
Sales revenue $30,000,000
Less: Cost of goods sold 21,000,000
Gross profit $ 9,000,000
Less: Operating expenses
Selling expense $3,000,000
General and administrative expenses 1,800,000
Lease expense 200,000
Depreciation expense 1,000,000
Total operating expense 6,000,000
Operating profit $ 3,000,000
Less: Interest expense 1,000,000
Net profit before taxes $ 2,000,000
Less: Taxes (rate = 40%) 800,000
Net profits after taxes $ 1,200,000