Group Case



Bahrain PolytechnicGroup CaseBSB6400center0Name:Maryam Alzayed 201102731Mohamed Naser: 201101331Ahmed Hasan: 201102731Sayed Ali: 201201312Sayed Mohamed: 201201305020000Name:Maryam Alzayed 201102731Mohamed Naser: 201101331Ahmed Hasan: 201102731Sayed Ali: 201201312Sayed Mohamed: 201201305Table of Contents TOC \o "1-3" \h \z \u Part One: PAGEREF _Toc281351688 \h 3(A) PAGEREF _Toc281351689 \h 3(B) PAGEREF _Toc281351690 \h 4(C) PAGEREF _Toc281351691 \h 4(D) PAGEREF _Toc281351692 \h 5Part two: PAGEREF _Toc281351693 \h 6Evaluation of statements of cash flows: PAGEREF _Toc281351694 \h 6Ratio analysis: PAGEREF _Toc281351695 \h 6Horizontal analysis PAGEREF _Toc281351696 \h 7Compliance: PAGEREF _Toc281351697 \h 8Recommendations: PAGEREF _Toc281351698 \h 9Part Three: PAGEREF _Toc281351699 \h 10Part 3 – A PAGEREF _Toc281351700 \h 10A- A Goodwill arising on acquisition of 4U Co: PAGEREF _Toc281351701 \h 10A-B- Consolidated Financial statements for Bahrain Duty Free: PAGEREF _Toc281351702 \h 10Part 3 - B PAGEREF _Toc281351703 \h 15A- General journal entries: PAGEREF _Toc281351704 \h 15B- T-Account: PAGEREF _Toc281351705 \h 16C- Statement of financial Position PAGEREF _Toc281351706 \h 16D- Appropriate accounting treatment: PAGEREF _Toc281351707 \h 17Part Four: PAGEREF _Toc281351708 \h 181.Ability to pay current liabilities: PAGEREF _Toc281351709 \h 181.1Current ratio: PAGEREF _Toc281351710 \h 181.2Acid ratio: PAGEREF _Toc281351711 \h 191.3Working capital: PAGEREF _Toc281351712 \h 212.Profitability: PAGEREF _Toc281351713 \h 222.1 Rate of return on sales: PAGEREF _Toc281351714 \h 222.2 Rate of return on total assets: PAGEREF _Toc281351715 \h 242.3 Rate of return on ordinary shareholders’ equity: PAGEREF _Toc281351716 \h 262.4 Earnings per share of ordinary shares: PAGEREF _Toc281351717 \h 283.Analyzing share investment PAGEREF _Toc281351718 \h 303.1 Price / earnings ratio PAGEREF _Toc281351719 \h 303.2 Dividend yield: PAGEREF _Toc281351720 \h 313.3 Book value per ordinary share: PAGEREF _Toc281351721 \h 33Recommendations: PAGEREF _Toc281351722 \h 35APA Reference: PAGEREF _Toc281351723 \h 38Lecture Notes: PAGEREF _Toc281351724 \h 38Research: PAGEREF _Toc281351725 \h 38Appendix PAGEREF _Toc281351726 \h 40Part 2 – (Evaluating cash flow statements) PAGEREF _Toc281351727 \h 40Ratio analysis PAGEREF _Toc281351728 \h 40Horizontal analysis PAGEREF _Toc281351729 \h 44Part One:In This Case, Our Company (Mohammed) is merging with Yousif creating a partnership company called 2B.(A)301942532448500317532448500Yousif's Account Yousif Statement of Financial Position301942553403500Mohammed's Account Mohammed's Statement of Financial Position 3175317500(B)After making both statements of financial position for Mohammed and Yousif we made the combine statement of financial position.(C)Profit Sharing, in this part we look at the different scenarios given to us and we calculate the profit for each scenario to Yousif and Mohammed.(D)Unofficial/illegal partnership (Khalid)An unregistered ordinary partnership is the type of business organization that requires less formality in comparison with other types of partnerships. It is simple to establish since it doesn’t require filing of particulars names of members and their authority, in addition to not providing the potential contracting party with any information to regarding the partnership creditability. Therefore, an unregistered partnership may sometimes come across some problems ("Type of business," n.d.). Forming a partnership may not require any paper work as it can be established with a simple agreement in different forms like an oral agreement or even a simple handshake (Spandaccini, 2005). But in order to eliminate any future confusion or dispute regarding the partners’ rights in relation to the company, a legal written agreement that includes the nature of the company, partner’s authority and contribution, management duties, how the interest/income will be shared, how decision will be made and withdrawal procedures is necessary ("Creating a partnership," n.d.). According to Deliotte and BDO international, the IFRS allow an entity to invest in a company for the purpose of providing rapid potential growth to the company’s capital and its economic interest rate without having any legal form of partnership (BDO, 2012). Therefore, Khalid can invest some of his cash in the company and can get a share of the company’s net income. However, without any legal agreement and without registering this new partnership, if the official partners refuse to give him his share of income, he cannot sue them for not doing so, as they are not legally required to do so (Deloitte, 2008).That’s why it is necessary for this new partnership to be registered under a specific name by the law with a written contractual agreement that include all the partners’ rights and obligations regarding their partnership in the company. In this case Khalid can continue being a silent partner to the company with the involvement that is restricted to the provided capital to the business, in addition to having no opinion in the company’s decisions, management and potential voting, but will have the ability to share the proceeds (Minke, 2011), or he can be a liable official partner.Part two:Evaluation of statements of cash flows:As requested by the accounting manager of Bahrain Duty free, three annual reports of 3 companies from different industries were obtained and their cash flow trends for 2 years were evaluated. These companies are Batelco, Alba and Bahrain commercial facilities company BCFC. ("Listed companies in,") The companies’ cash flows were basically evaluated using two methods of analysis, which are the ratio analysis and the horizontal analysis. Ratio analysis:Under the ratio analysis, 3 ratios were chosen for the evaluation. The first ratio is the cash flow ratio which is calculated subtracting the Capital expenditure from the cash flows from operating activities. The capital expenditure is difference between change in total assets and change in total liabilities. Free cash flow ratio measures the money generated by the company after paying for acquiring and maintaining its assets(Free cash flow, n.d)( Capital Expenditure, n.d). The second ratio is the operating cash flow to sales ratio. It is calculated by dividing the cash flow from operating activities with the sales revenue. This ratio shows the percentage of the sales revenue that is available in cash. The collection of accounts receivable significantly affects this ratio (Operating Cash Flow/Sales Ratio, n.d).The third ratio is the cash flow coverage ratio. It is calculated by dividing the cash flow from operating activities by the total liabilities of the company. This ratio measures the company’s ability to pay its liabilities (Financial Accounting System, lecture 2014). -1714501422400Note: Calculations in appendixNote: Calculations in appendix-17145020764500The results for the ratio analysis can be seen above. From the above explanation of the ratios, it can be understood that the higher the ratio, the better it is for the company. As for the cash flow ratio, Alba has the highest ratio while BCFC has the lowest. For the operating cash flow to sales ratio, Batelco has the highest ratio while BCFC has the lowest. For the last ratio, which is the cash flow coverage ratio, Batelco again has the highest ratio while BCFC has the lowest. Horizontal analysisFor the horizontal analysis, we first find the $ change per year which is the difference between the current and previous year. After that we find the % change which is calculate by dividing the $ change by the previous year and multiply it by hundred to get the percentage. The horizontal analysis were made for cash flow from operating, investing and financing activities, net increase/decrease in cash and cash equivalent, cash and cash equivalents at the beginning and end of the year as well as the profit for the year (Financial Accounting System, lecture 2014). -22288521717000-220980-88265Note: Calculations in appendix0Note: Calculations in appendixThe results above show that Batelco has the highest percentage changes in cash flow from operating activities, cash flow from investing activities and cash and cash equivalents at the beginning of the year. Alba has the highest percentage change in net increase in cash and cash equivalents only. BCFC has the highest percentage change in cash flow from operating activities, cash and cash equivalent at the end of the year and profit for the year. Looking at the results of both, the ratio analysis and the horizontal analysis, it is clear that Batelco has the best cash flow among the three companies. Alba has the second best cash flow while BCFC has the worst. Compliance:According to IFRS any entity should prepare a cash flow statement in our case Batelco complied with IFRS in preparing a cash flow statement. (IAS7. Paragraph 1. N.d) As for the presentation. IAS7 in paragraph 10 specifies that the cash flow statement should contain the operating, investing and financing activities all of which is specified and displayed by Batelco in their cash flow statement. Furthermore, the company should include the period the financial statements are presented which is complied with by Batelco (IAS7. Paragraph 1. N.d). Also, all the information in each activity is correct in compliance with IAS7 (i.e. Cash receipts from customers, Acquisitions...).As for the reporting of the operating activities, Batelco reports them in compliance with the direct method. As they show the amount of cash received from customers and cash paid to suppliers and on behalf of employees. Which is something that is encouraged by the IAS7 as it provides information that may be useful in estimating future cash flows and is not available under the indirect method. (IAS7. Paragraph 18, 19. N.d)According to IAS7, paragraph 25 and 26 the company should record foreign currencies with the entity’s functional currency by the exchanging rate of the day the statement is made. In Batelco’s case they have other subsidiaries out of Bahrain and the fact that the consolidated cash flow statement is made in Bahraini Dinars means that Batelco is in compliance with the IAS7 in this. However, nothing about unrealized gains or losses from the exchanges is mentioned in the consolidated cash flow statement.According to IAS7, Paragraph 31, Dividends paid and interest paid should be recorded separately under the financing activities. And Batelco records them like that as well.As for non-cash transactions in paragraph 43 and 44. There is nothing that suggests Batelco have added non cash transactions therefore Batelco are in compliance with IAS7 in this paragraph.According to IAS7, paragraph 45 the company must disclose the components of cash and cash equivalents in the notes to the financial statements part. This is not available in Batelco’s Notes meaning they are not complying with the IAS7 in this paragraph. Also, Batelco are not complying with paragraph 48 which states that the company must shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group.Recommendations:Batelco must comply with IAS7 Paragraph 45 and 48 in disclosing the components of cash and cash equivalents as well as information about cash and cash equivalents balances held by the entity that are not available for use by the group in the notes to the financial statement part.In Bahrain, Batelco are not required to pay taxes. However, if one of their subsidiary companies in Jordan, Yemen or the Maldives require the parent company to pay some kind of taxes that they probably should add them to the consolidated cash flow statement.Batelco should add the gains and losses from the foreign currency exchanges in order to reconcile cash and cash equivalents at the beginning and the end of the financial period.In other words, Batelco’s Cash flow statement is well made in accordance to the IAS7 but if they follow these recommendations they will be able present a cash flow statement that is in more compliance with IAS7 in the next annual report.Part Three:Part 3 – AIn This Case, We know that Duty free has purchased 70% of 4U company’s shares. Due to the fact that they now own more than 50 % of the company shares they are required by the IFRS to form a consolidated statement of financial position as well as a consolidated income statement.But before that there are transactions and calculations that must be done.A- A Goodwill arising on acquisition of 4U Co:A-B- Consolidated Financial statements for Bahrain Duty Free:During the year, Bahrain Duty free sold inventories to 4U as an Inter entity transaction. Therefore calculations must be done to calculate the unrealized profit, the balance of inventories as well as how the transaction affects the revenue and cost of goods sold balances respectively.The balance of the revenue (showing the calculation for the selling price of the transaction)The Unrealized ProfitCost of goods SoldInventory Balance4U Owes Bahrain Duty free BD8500 as Trades Payable after the transaction in other words Bahrain Duty free has a trade receivable of BD8500 from 4U. So in order to calculate the balances of the trade receivable and the trade payable for the consolidated statement we add the respective accounts from each company and subtract the BD8500 owed by 4U to Bahrain Duty free.1)2)Because Bahrain Duty Free owns 70% of the shares, the other 30% are defined as non-controlling interestFinally knowing the consolidated profit for the year (2,701,223) we have to know which of it is attributed to Bahrain Duty free the parent company and which is for the subsidiary 4U. Knowing that the NCI is 30% calculations for profit attributable to 4U were 7800 and subtracting that from the total profit gives us the profit attributable to the Parent company (Bahrain Duty Free).Below are the calculations of the retained earnings for the statement of financial positionA-B 1: The Consolidated income Statement for the year ended31 October 2012Bahrain Duty FreeConsolidated Statement of comprehensive IncomeFor the year ended 31 October 2012Revenue27,595,930Cost of sales15,376,921-Gross profit12,219,009Expenses Administrative expenses4,495,839-Royalty2,922,150-Other operating expenses 1,152,379-Selling expenses523,792-Impairment of investments415,826-Total expenses9,509,986-Profit for the year 2,709,023Profit attributable to :Owners of the parent2,701,223Non-controlling interest 7,800A-B 2: The Consolidated Statement of Financial Position as at 31 October2012Part 3 - BIn this case for Bahrain Duty free, we have a list of transactions relating to investments they have made during the year 2013 in two companies that are Alba and GFH. A- General journal entries:First, we recorded the general journal entries for those transactions:The first transaction in January 8th Bahrain duty free invested in Alba (available for sale investment) by buying 1200 shares for the price of 14 BD each totaling BD16800. In the 15th of March Bahrain Duty free invested in GFH acquiring 26.5% in a long term equity method investment for BD45000. In April 6th they received dividends from Alba of BD1.7 per share totaling BD 2040. In the 4th of May they received dividends of BD25000 from GFH which is recorded in a different way in comparison to the dividends from Alba because they are different kinds of investments. On October 23rd Bahrain Duty free received BD92750 from their association with GFH. Finally at the end of the financial year (31st of October 2013) Bahrain Duty Free had to make adjustments for the unrealized gain on their available for sale investment in Alba for a total of BD14600.B- T-Account:The T-Account for Long Term Investments in GFH:In this part we show the T-Account for the Equity method investment made by Bahrain duty Free acquiring 26.5% of GFH. Firstly, the Original price which is debited at BD 45000 on the 15th of March. Then on the 4th of May they received dividends of BD25000 (Credit) and finally on the 23rd of October for the share gain from the 26.5% portion is debited with BD 92750 income from associates. That finally leads for a final debit balance for the Account of BD112750.C- Statement of financial PositionIn this part we show how both Investments (Alba and GFH) are recorded in the Statement of financial Position. First of all both investments are recorded in the Assets under the non-current assets part as a long term investment mentioning each type of the investment and the name of the investment (Available for sale – Alba, Equity method – GFH). And the amount recorded is the fair market value for the available for sale investment and the closing balance for the Equity method investment account. As for the Shareholders equity part of the statement of financial position we record the unrealized gain on investment (from the Alba investment) for a total of BD14600.D- Appropriate accounting treatment:As Bahrain Duty Free used the market fair value of the share in the investment made by both Alba and GFH, the accounting treatment used vary between them. In Alba, the investments are qualified as available for sale investments, while the investment in GFH, the equity method was used as Bahrain Duty Free acquired 26.5% as long term investment, in hopes of having significant control over GFH operating decisions. The IAS 39, which was replaced by the IFRS 9 is applied on the Alba investment ( Available for sale) as the value will be based on the fair value of the investment, excluding any changes that happened in the company’s profit or loss values, since they will be included in their statement of comprehensive income ("IAS 39 —," n.d.) Moreover, GFH is applying IAS 28 on their investment (Equity method) as it is interpreted to the investment’s fair value, in relations to the value changes in either their profit or loss (Unrealized gain or loss on investment), and Bahrain Duty Free being as their investor has significant control of more than 20%, which means having the power to participate in the decision making process of both the financial and operating policy decisions of GFH, but without having joint control ("Ias 28 —," 2011).Part Four:Ability to pay current liabilities:Also known as liquidity ratios, they are used to determine the ability of a company to pay its current liabilities. ("Liquidity ratios," n.d.)Current ratio:This ratio aims to determine the ability to its pay current liabilities by using its current assets within one fiscal year. For example: if a company has a current ratio of 3 means that it current assets are sufficient to cover its current liabilities for 3 times. ("Current ratio interpretation," n.d.)*Formula: Current Assets / Current Liabilities ("Current ratio interpretation," n.d.)Current Ratio for Batelco in 2012 = 216,891,000 BHD / 149,136,000 BHD = 1.5 times(The answer is to the nearest one decimal place) This current ratio of 1.5 indicates that Batelco’s current assets are sufficient to cover its current liabilities for 1.5 times.Current Ratio for Alba in 2012 = 317,010,000 BHD / 297,478,000 BHD = 1.1 times(The answer is to the nearest one decimal place) This current ratio of 1.1 indicates that Alba’s current assets are sufficient to cover its current liabilities for 1.1 times.Notes:According to the calculations conducted above, it is noticeable that both companies have a positive ratio that reflects their strong financial position where Batelco has a current ratio of 1.5 times and Alba has a current ratio of 1.1 times. Which indicates that Batelco is expected to have an extra amount of their liquid current assets more than Alba is expected to have after both of them pay their current liabilities using their current assets.Batelco’s screenshots:?Alba’s screenshots:Acid ratio:This ratio aims to determine the ability of a company to pay its current liabilities when they come due immediately by using its cash and other liquid current assets excluding inventory. For example, an acid-test ratio of 2 would mean that the company is able to pay twice for its current liabilities as they due immediately using its most liquid current assets excluding inventory. ("Quick ratio -," n.d.)*Formula: Cash + Short-term investments + Net Current Receivables / Current Liabilities ("Quick ratio -," n.d.)Acid-test Ratio for Batelco in 2012 = (Cash and Bank balances 94,922,000 BHD) + (Available-for-sale investments- short term 3,770,000 BHD) + (Trade and other receivables 115,569,000 BHD) / current liabilities 149,136,000 BHD = 1.4 times (The answer is to the nearest one decimal place) This acid-test ratio of 1.4 indicates that Batelco’s cash and other liquid assets (excluding inventory) are sufficient to cover its current liabilities when they come due immediately for 1.4 times.Acid-test Ratio for Alba in 2012 = (Bank balances and cash 61,605,000 BHD) + (Current portion of long term receivable 3,438,000 BHD) + (Accounts receivable and prepayments 108,299,000 BHD) / current liabilities 297,478,000 BHD = 0.6 times (The answer is to the nearest one decimal place) This acid-test ratio of 0.6 indicates that Alba’s cash and other liquid assets (excluding inventory) are sufficient to cover its current liabilities when they come due immediately for 0.6 times.Notes: According to the calculations conducted above, not both companies have a positive Acid-test ratio, where Batelco has an Acid- test ratio of 1.4 times which is positive and Alba has an Acid-test ratio of 0.6 times which is negative. Which indicates that Batelco is expected to have an extra amount of current assets after paying their current liabilities when they due immediately using their liquid current assets. As Alba is expected to have a shortage where their Acid-test ratio of 0.6 times shows that they don’t have a sufficient liquid current assets to cover their current liabilities when they due immediately.Batelco’s screenshots:Alba’s screenshots:Working capital:This ratio indicates the ability of a company to pay its current liabilities by using its current assets in which it would state the operating liquidity available for the company. For example, if a company has current liabilities with 3000 BHD and current assets with 2500 BHD then the company has a negative working capital of 500 BHD in shortage of paying its current liabilities using its current assets. ("Working capital calculator," n.d.)*Formula: Working capital = Current Assets – Current Liabilities ("Working capital calculator," n.d.).Working Capital for Batelco in 2012 =216,891,000 BHD - 149,136,000 BHD = 67,755,000 BHDThis amount of 67,755,000 BHD is the residual amount Batelco will have after paying their 149,136,000 BHD of current liabilities using their 216,891,000 BHD of current assets.Working Capital for Alba in 2012 = 317,010,000 BHD - 297,478,000 BHD = 19,532,000 BHDThis amount of 19,532,000 BHD is residual amount Alba will have after paying their 297,478,000 BHD of current liabilities using their 317,010,000 BHD of current assets.Notes:According to the calculations conducted above, it is noticeable that both companies have a positive working capital that reflects their strong financial position where Batelco has a working Capital of 67,755,000 BHD and Alba has a working Capital of 19,532,000 BHD. Which indicates that Batelco has a healthier position and expected to have a surplus of their current assets more than Alba is expected to have after both of them pay their current liabilities using their current assets.Batelco’s screenshots:Alba’s screenshots:Profitability:Profitability ratios are used to determine how efficient a company is in generating profits using its resources that consist of their assets, equity and sales. ("Profitability ratios,")2.1 Rate of return on sales: This ratio is also known as net profit margin ratio. This ratio aims to determine the portion of net income is being generated for each 1 BHD of the company’s sales. For example, if the Rate of return on sales = 30% then the company is generating 30% net income from each 1 BHD of their sales. ("Net profit margin,")*Formula: (Net Income / Net Sales) * 100 ("Net profit margin,").Rate of return on sales? for Batelco in 2012 = (Profit for the year attributable to Equity holders of the Company 60,340,000 BHD / Revenue 304,710,000 BHD) * 100 = 19.8%(The answer is to the nearest one decimal place) This percentage of 19.8% indicates the net income Batelco receives from each 1 BHD received as net sales.Rate of return on sales? for Alba in 2012 = (Profit for the year 96,545,000 BHD / Sales 743,725,000 BHD) * 100 = 13%(The answer is to the nearest one decimal place) This percentage of 13% indicates the net income Alba receives from each 1 BHD received as net sales. Notes:According to the calculations conducted above, it’s noticeable that both companies have a positive ROS portion except that Batelco has a higher portion of 19.8% than Alba’s portion of 13%. Which reflects Batelco’s higher ability of maintaining their profits at a sustainable level than Alba could possibly do, as well as it insures Batelco’s operational efficiency that is higher than Alba’s operational efficiency.Profit for the year attributable to equity holders of the company has been used in order to calculate the portion of return on sales without including the non-controlling interest in the net income. The Non-controlling interest is the income the investee or parent company isn’t entitled to due to the portion they cannot control in the subsidiary company they invested in, so the investor will have more accurate information.Batelco’s screenshots:Alba’s screenshots:2.2 Rate of return on total assets: This ratio aims to determine the company’s ability to generate profits using its current assets. For example, if the rate of return on total assets =15% then the company is generating 15% as a net income from each 1 BHD of the assets a company controls. ("Profitability ratios," 2010)*Formula: ((Net Income + Interest Expense) / Average Total Assets)) * 100 ("Profitability ratios," 2010)Rate of return on total assets for Batelco in 2012 = (Profit for the year attributable to Equity holders of the Company 60,340,000 BHD) + (Interest expense 370,000 BHD) / ((Beginning Assets 659,307,000 BHD + Ending Assets 689,368,000)/ 2) * 100 = 9%(The answer is to the nearest one decimal place) This percentage of 9% indicates the net income Batelco receives from each 1 BHD of its assets.Rate of return on total assets for Alba in 2012 = (Profit for the year 96,545,000 BHD + Interest expense 6,121,000 BHD)/ ((Beg Assets 1,304,790,000 BHD + Ending Assets 1,229,103,000)/ 2) * 100 = 8.1%(The answer is to the nearest one decimal place) This percentage of 8.1% indicates the net income Alba receives from each 1 BHD of its assets.Notes: According to the calculations conducted above, it highly noticeable that both companies have an approximate portion of rate on assets where Batelco’s portion is 9% and Alba’s portion is 8%. Which clarifies that Batelco is generating more profits from every 1 BHD of their assets than Alba do, as Alba is only generating 8.1% as a net income from each 1 BHD of their Assets.Profit for the year attributable to equity holders of the company has been used in order to calculate the portion of return on total assets without including the non-controlling interest in net income. The Non-controlling interest is the income the investee or parent company isn’t entitled to due to the portion they cannot control in the subsidiary company they invested in, so the investor will have more accurate information.Batelco’s screenshots:Alba’s screenshots:2.3 Rate of return on ordinary shareholders’ equity:This ratio aims to determine the profit a company gains from it’s ordinary shareholders investments in which it indicates the net income a company gains from each 1 BHD invested by their ordinary shareholders. For example, if the rate of return on ordinary shareholders equity = 11% then the company is generating 11% of each 1 BHD an ordinary shareholder invests. ("Return on common," 2014)*Formula: ((Net Income – Preference Dividends) / Average ordinary shareholders’ equity) * 100 ("Return on common," 2014)Rate of return on ordinary shareholders’ equity for Batelco in 2012 = (Profit for the year attributable to Equity holders of the Company 60,340,000 BHD - Preference dividends 0 BHD) / Average ordinary shareholders’ equity ((Beginning ordinary shareholders’ equity 505,840,000 BHD + Ending ordinary shareholders’ equity 514,348,000 BHD)/2) *100% = 11.8%(The answer is to the nearest one decimal place) This percentage of 11.8% indicates the gains Batelco receives from each 1 BHD the ordinary shareholder invests.Rate of return on ordinary shareholders’ equity for Alba in 2012 = (Profit for the year 96,545,000 BHD - Preference dividends 0 BHD) / ((Beginning ordinary shareholders’ equity 808,793,000 + Ending ordinary shareholders’ equity 829,618,000) / 2) * 100% = 11.8% (The answer is to the nearest one decimal place) This percentage of 11.8% indicates the gains Alba receives from each 1 BHD the ordinary shareholder invests.Notes:According to the calculations conducted above, both companies have the same portion of 11.8% rate of return on ordinary shareholders’ equity that doesn’t distinguish one company over another in this area.Profit for the year attributable to equity holders of the company and total equity attributable to equity shareholders of the company have been used in order to calculate the portion of return on ordinary shareholders’ equity without including the non-controlling interest. The Non-controlling interest is the income the investee or parent company isn’t entitled to due to the portion they cannot control in the subsidiary company they invested in, so the investor will have more accurate information.Batelco’s screenshots:Alba’s screenshots:2.4 Earnings per share of ordinary shares:This ratio aims to determine the amount a company receives as net income from each outstanding ordinary share. For example, if the earnings per share of ordinary shares = 33 fils then the company is generating 33 fils per each ordinary outstanding share. ("Earnings per share," 2014)*Formula: ((Net Income – Preference Dividends)/ Weighted average number of ordinary shares outstanding) * 100 ("Earnings per share," 2014)Earnings per share of ordinary shares for Batelco in 2012 = (Profit for the year attributable to Equity holders of the Company 60,340,000 BHD – Preference dividends 0 BHD) / weighted-average number of ordinary shares outstanding during the year (in thousands) 1,440,000 BHD = 41.9 fils(The answer is to the nearest one decimal place) This amount of 41.9 fils indicates the net income Batelco receives from each ordinary outstanding share. Earnings per share of ordinary shares for Alba in 2012 = (Profit for the year 96,545,000 BHD - Preference dividends 0 BHD) / weighted-average number of ordinary shares outstanding during the year (in thousands) 1,412,508 BHD = 68.4 fils(The answer is to the nearest one decimal place) This amount of 68.4 fils indicates the net income Alba receives from each ordinary outstanding share.Notes:According to the calculations conducted above, it’s highly noticeable that both companies have a positive EPR of ordinary shares where Batelco’s EPR of ordinary shares is 41.9 fils and Alba’s EPR of ordinary shares is 68.4 fils. Which indicates that Alba has a higher EPR of ordinary shares than Batelco’s.Profit for the year attributable to equity holders of the company has been used in order to calculate the amount of earnings per share of ordinary shares without including the non-controlling interest. The Non-controlling interest is the income the investee or parent company isn’t entitled to due to the portion they cannot control in the subsidiary company they invested in, so the investor will have more accurate information.Batelco’s screenshots:Alba’s screenshots:Analyzing share investmentAlso known as valuation ratios, they are used by investors in order determine the suitable value of a certain stock. (Smith , 2009)3.1 Price / earnings ratio This ratio aims to determine the relationship between the market price and the company’s earning per share, as it shows how much is the investors are willing to pay for the company’s earnings per share as well as it reflects the company’s performance. For example, if the Price / earnings ratio = 4 times then it means the company is expected to receive 4 times of its earnings per share from investors. (Little, 2014)*Formula: Market price per share of ordinary shares / Earning per share (Little, 2014)Market price per share of ordinary shares / Earning per share for Batelco in 2012 =Market price per share of ordinary shares 0.334 BHD ("Daily trading summary,") / EPS 0.0419 BHD = 8 times(The answer is to the nearest one decimal place) This ratio of 8 times indicates that Batelco is expected to receive from investors as many as 8 times as its earnings per share.Market price per share of ordinary shares / Earning per share for Alba in 2012 =Market price per share of ordinary shares 0.498 BHD ("Daily trading summary,") / EPS 0.0608 BHD = 8.2 times(The answer is to the nearest one decimal place) This ratio of 8.2 times indicates that Alba is expected to receive from investors as many as 8.2 times as its earnings per share.Notes:According to the calculations conducted above, its highly noticeable that both companies have a positive nearby price / earnings ratio where Batelco’s price / earnings ratio is 8 times and Alba’s price / earnings ratio is 8.2 times. In which even if it small difference between both companies ratio, it still indicates that investors are willing to pay for Alba’s earnings per share more than Batelco’s earnings per share.Batelco’s screenshots:Alba’s screenshots:3.2 Dividend yield:This ratio aims to determine the relationship between the market value per share and the dividends the shareholders receive, as it indicates the portion the shareholders receive annually as a dividend from the current shares market value. For example, if the dividend yield for a company is 7.5% then it means the company pays 7.5% of the shares’ current market value to its shareholders as a dividend. ("Dividend yield," 2014)*Formula: (Dividend per share of ordinary shares / Market price per share of ordinary shares) * 100 ("Dividend yield," 2014)Dividend yield for Batelco in 2012 =(Dividend per share of ordinary shares 0.035 BHD / Market price per share of ordinary shares 0.334 BHD ("Daily trading summary,")) * 100 = 10.5%(The answer is to the nearest one decimal place) This portion of 10.5% indicates the portion Batelco pays from the current shares’ market value to the ordinary shareholders as dividends.Dividend yield for Alba in 2012 =(Dividend per share of ordinary shares 0.028 BHD / Market price per share of ordinary shares 0.498 BHD ("Daily trading summary,")) * 100 = 5.6%(The answer is to the nearest one decimal place) This portion of 5.6% indicates the portion Alba pays from the current shares’ market value to the ordinary shareholders as dividends.Notes:According to the calculations conducted above, it’s highly noticeable that both companies have a positive dividend yield ratio where Batelco’s dividend yield ratio is 10.5% and Alba’s dividend yield ratio is 5.6%. Which indicates that Batelco has a higher dividend yield ratio.Batelco’s screenshots:Alba’s screenshots:3.3 Book value per ordinary share:This ratio aims to determine the book or accounting value per ordinary share of a company in relation of its ordinary shareholders equity, as it indicates the amount the shareholders would receive in case if the company is being liquidated. For example, if a company book value per share is 100 BHD then it means that each of the shareholders equity would receive 100 BHD after liquidation and paying all the companies’ debts. ("Book value per,")*Formula: (Total Shareholders equity – Preference Equity) / Weighted Average number of ordinary shares outstanding ("Book value per," )Book value per ordinary share for Batelco in 2012 = (Total equity attributable to equity holders of the Company 514,348,000 BHD - Preference equity 0 BHD) / Weighted Average number of ordinary shares outstanding 1,440,000 BHD = 357.2 BHD (The answer is to the nearest one decimal place) This amount of 357.2 BHD indicates the amount Batelco will pay to its shareholders equity after liquidation and paying the companies debts.Book value per ordinary share for Alba in 2012 =(Total shareholders’ equity 829,618,000 BHD - Preference equity 0 BHD) / Weighted Average number of ordinary shares outstanding 1,412,508 BHD = 587.3 BHD(The answer is to the nearest one decimal place) This amount of 587.3 BHD indicates the amount Alba will pay to its shareholders equity after liquidation and paying the companies debts.Notes:According to the calculations conducted above, it’s highly noticeable that both companies have a positive amount of book value per ordinary share where Batelco’s book value per ordinary share amount is 357.2 BHD and Alba’s book value per ordinary share is 587.3 BHD. Which indicates that Alba has a higher book value per ordinary share.Total equity attributable to equity holders of the company has been used in order to calculate the amount of book value per ordinary share for Batelco without including the non-controlling interest. The Non-controlling interest is the income the investee or parent company isn’t entitled to due to the portion they cannot control in the subsidiary company they invested in, so the investor will have more accurate information.Batelco’s screenshots:Alba’s screenshots:Recommendations:A ratio analysis has been conducted for both of the Bahraini companies that are listed on the Bahrain Stock Exchange which are Batelco and Alba using their financial statements for the year of 2012. This ratio analysis aims to provide the investor Bahrain Duty Free with an overall picture of the two chosen companies Batelco and Alba in the year of 2012 in order to assist Bahrain Duty Free where to invest their 700,000 BHD. These ratios are: 1. Ability to pay current liabilities RatioCompany name1.1 CurrentRatio 1.2 Acid-testRatio1.3 Working CapitalBatelco1.5 times1.4 times67,755,000 BHDAlba1.1 times0.6 times19,532,000 BHDAccording to the ability to pay current liabilities ratios and figures stated in this table Batelco’s ratios surpasses Alba ratios. In which the current ratio for Batelco is 1.5 times and for Alba is 1.1 times, the acid-test ratio for Batelco is 1.4 time and for Alba is 0.6 time, and the working capital for Batelco is 67,755,000 BHD and for Alba is 19,532,000 BHD. These ratios indicate that Batelco have a healthier and safer position than Alba, because Batelco are willing to satisfy their current debts from their current assets in case of liquidation, in fact Batelco is even expected to have a residual amount of their liquidized assets even after paying their current debts. Whereas, Alba is expected to have a shortage when it comes to pay their current debts using their current assets in case of liquidation. In addition, Batelco’s working capital shows that they have sufficient money from operations that gives them a higher ability to fund and expand their activities.2. Profitability RatioCompany name2.1 Rate of return on sales2.2 Rate of return on total assets2.3 Rate of return on ordinary shareholders equity2.4 Earnings per share for ordinary sharesBatelco19.8%9%11.8%41.9 filsAlba13%8.1%11.8%68.4 filsAccording to the profitability ratios and figures stated in this table most Batelco’s ratios also surpasses Alba’s ratios. In which the Rate of return on sales for Batelco is 19.8% and for Alba is 13%, Rate of return on total assets for Batelco is 9% and for Alba is 8.1%, Rate of return on ordinary shareholders equity for Batelco is 11.8% and for Alba 11.8%. The only ratio that Alba surpasses Batelco in is the Earnings per share for ordinary shares, where Batelco has earnings per share for ordinary shares of 41.9 fils and Alba has Earnings per share for ordinary shares of 68.4 fils. The earnings per share for ordinary shares for Alba might be more than Batelco’s where it might be attractive to investors, however, Batelco has the advantage in terms of the Rate of return on sales that is 19.8% and Rate of return on total assets that is 13% in which they are higher than Alba’s where they show a better ability to generate profits on their sales and assets as well which might attracts investors as well as they might seek for a more efficient investment.3. Analysing share investment RatioCompany name3.1 Price / earnings3.2 Dividends yield3.3 Book value per ordinary shareBatelco8 times10.5%357.2 BHDAlba8.2 times5.6%587.3 BHDAccording to the analysing share investment ratios and figures stated in this table. Alba surpasses Batelco in most of the ratios. In which the price / earnings for Batelco is 8 times and for Alba is 8.2 times, dividend yield for Batelco is 10.5% and for Alba is 5.6%, Book value per ordinary share for Batelco 357.2 BHD and for Alba is 587.3 BHD. However, this figure of the Book value per ordinary share doesn’t provide a solid picture of the company because it doesn’t relate to the actual market value and doesn’t provide sufficient information towards what has been shown in the statement of financial position. In which in the statement of financial position fro both companies Batelco has the advantage over Alba in terms of liquidity ratios that can be noticeable in the analysis above. In addition, despite of Batelco having only one ratio more than Alba, still this higher dividend yield ratio gives the investor the portion of dividends he/she is expected to receive from the current market value per share which could be attractive to the investor where both companies have nearly the same price/ earnings ratio as it indicates how the market is optimistic of the companies’ performance that could grab potential investors. ("Book value per,") Which consequently states that Batelco is also better thatn Alba in relation to Analysing share investment ratios. Given to the analysis conducted above, Batelco seems to be the company Bahrain Duty Free might want to invest their 700,000 BHD in. Because, they have a healthier and safer position than Alba in terms of liquidity ratios in the contrast for Alba where they might face some difficulties in paying their current liabilities when they come due immediately as their negative acid-test ratio of 0.6 times indicates that. As for the profitability ratios, it was Batelco that took the step ahead over Alba in most of the ratios where Batelco’s ratio indicate the efficiency they have over Alba in terms of generating profit from their sales, assets and equity. As for the analysing share investment, Batelco has a higher dividend yield ratio and both companies nearly have the same price / earnings ratio. Despite of Alba having a higher book value per ordinary share still this isn’t a solid measurement of how the company is doing as the statements of financial position for both companies indicates that.APA Reference:Lecture Notes:Financial Accounting System (2014).?Statement of Cash flow week 8 notes[PowerPoint slides]. Retrieved from Financial Accounting System (2014).?Financial Statement Analysis week 9 notes[PowerPoint slides]. Retrieved from Research:Alba 2012 annual report. (n.d.). Retrieved from Reports/AnnualReport2012.pdfAlba 2013 annual report. (n.d.). Retrieved from Reports/AnnualReport2013.pdfBahrain commercial facilities company bsc annual report 2012. (n.d.). Retrieved from commercial facilities company bsc annual report 2013. (n.d.). Retrieved from group annual report 2012. (n.d.). Retrieved from group anuual report 2013. (n.d.). Retrieved from . (2012).?Investment entities- Amendments to IFRS 10, IFRS 12 and IAS 27. Retrieved from 2012/IFRB-2012-15.pdfBook value per share. (n.d.). Retrieved from value per share. (n.d.). Retrieved from ratio interpretation. (n.d.). Retrieved from Creating a partnership agreement. (n.d.). Retrieved from trading summary. (n.d.). Retrieved from . (2008, July 08).?Business combinations and changes in ownership interests — a guide to the revised ifrs 3 and ias 27. Retrieved from yield. (2014). Retrieved from per share. (2014). Retrieved from 28 — investments in associates and joint ventures?. (2011). Retrieved from 39 — financial instruments: Recognition and measurement. (n.d.). Retrieved from . (nd). International Accounting System. Retrieved from . (nd). Free Cash Flow. Retrieved from . (nd). Operating Cash Flow/Sales Ratio. Retrieved from ratios. (n.d.). Retrieved from companies in stock exchange. (n.d.). Retrieved from Little, K. (2014). Understanding price to earnings ratio. Retrieved from , A. (2011).?Working as an independent contractor. Retrieved from profit margin ratio. (n.d.). Retrieved from ratios. (2010). Retrieved from ratios. (n.d.). Retrieved from ratio - acid test ratio. (n.d.). Retrieved from . (nd). Capital Expenditure (CAPEX). Retrieved from on common stockholders’ equity ratio. (2014). Retrieved from , A. (2009, March 30). 5 important valuation ratios to understand. Retrieved from , M. (2005, June 02).?The legal ins and outs of forming a partnership. Retrieved from of business organizations- Partnerships. (n.d.). Retrieved from capital calculator. (n.d.). Retrieved from 2 – (Evaluating cash flow statements)Ratio analysis BatelcoOperating cash flow to sale ratioOP cash flow/Sales revenue2012= 104496000/304710000*100=34.29% (See appendix a. and b. )2013=124182000/370561000*100=33.51% (See appendix a. and b. )Free Cash flow ratioOP cash flow-Capital expenditures (PPE)Captial expenditure= Difference in total assets – difference in total liabilities2012=104496000-{(689368000-659307000)-(169187000-140616000)}=104496000-(30061000-28571000)=104496000-1490000=103006000 (See appendix a. , c. and d.)2013=124182000-{(1042164000-689368000)-(449019000-169187000)}=124182000-(352796000-279832000)=124182000-72964000=51218000 (See appendix a. , e. and f. )Cash flow coverage ratioOp cash flow/Total liabilities2012=104496000/169187000=0.6176 times (See appendix a. , e. and f. )2013=124182000/449019000=0.2766 times (See appendix a. , e and f )Alba Operating cash flow to sale ratioOP cash flow/Sales revenue2012=153059000/743725000*100=20.58% (See appendix g. and h.)2013=130172000/749338000*100=17.37% (See appendix g. and h. )Free Cash flow ratioOP cash flow-Capital expenditures (PPE)Captial expenditure= Difference in total assets – difference in total liabilities2012=148983000-{(1229103000-1304790000)-(399485000-495997000)}=148983000-(-75687000-(-96512000))=148983000-20825000=128158000 (See appendix g. and i.)2013=130172000-{(1178278000-1211943000)-(309827000-382325000)}=130172000-(-33665000-(-72498000) =130172000-38833000=91339000 (See appendix g. and j. )Cash flow coverage ratioOp cash flow/Total liabilities2012=153059000/382325000=0.4003 times (See appendix g. and j.)2013 ( See appendix g. and j.)=0.4201 timesBahrain commercial facilities companyOperating cash flow to sale ratioOP cash flow/Sales revenue2012=-4798000/58544000*100=-8.20% (See appendix k. and l.)2013=-10875000/64617000*100=-16.83% (See appendix k and l.)Free Cash flow ratioOP cash flow-Capital expenditures (PPE)Capital expenditure= Difference in total assets – difference in total liabilities2012=-4564000-{(193661000-176588000)-(108211000-99451000)}=-4564000-(17073000-8760000)=-4564000-8313000=-12877000 (See appendix k. and m.)2013=-10875000-{(228681000-193661000)-(135856000-108211000)}=-10875000-(35020000-27645000)=-10875000-7375000=-10882375 (See appendix k. and n.)Cash flow coverage ratioOp cash flow/Total liabilities2012=-4798000/108211000=-0.0443 times ( See appendix k and n.)2013=-10875000/135856000=-0.0800 times (See appendix k. and n.)Horizontal analysisFormula$ Change= Current year-Previous Year% change= $change/Previous year*100BatelcoCash flow from operating activities$ Change= 124182000-104496000= 196686000 % Change= 196686000/104496000*100= 18.84% (See appendix a.)Cash flow from in investing activities$ Change= -194178000-(-73708000)=-120470000% Change=-120470000/-73708000*100= 163.44% (See appendix o.)Cash flow from financing activities$ Change= 172899000-(-43716000)=216615000% Change=216615000/-43716000*100= -495.51% (See appendix o.)Net increase/decrease in cash and cash equivalents$ Change = 102903000-(-12928000)= 115831000% Change = 115831000/-12928000*100= -895.97% (See appendix o.)Cash and cash equivalent at the beginning of the year$ Change= 92167000-105095000= -12928000% Change= -12928000/105095000*100= -12.3% (See appendix o.)Cash and cash equivalent at the end of the year$Change = 195070000-92167000= 102903000% Change = 102903000/92167000*100= 111.65% (See appendix o.)Profit for the year$ Change = 51454000-65343000= -13889000 % Change = -13889000/65343000*100= -21.26% (See appendix b.)Alba Cash flow from operating activities$ change = 130172000-153059000= -22887000% Change = -22887000/153059000*100= -14.95% (See appendix g. )Cash flow from investing activities$ Change = -47654000-(-32208000)= -15446000% Change = -15446000/-32208000*100= 47.96% (See appendix p.)Cash flow from financing activities$ Change = -79583000-(-158733000)= 79150000% Change = 79150000/-158733000*100= -49.86% (See appendix p.)Increase/decrease in cash and cash equivalents$ Change = 2935000-(-37882000)= 40817000% Change = 40817000/-37882000*100= 107.75% (See appendix p.)Cash and cash equivalents at the beginning of the year$ Change = 61605000-99487000= -37882000% Change = -37882000/99487000*100= -38.08% (See appendix p.)Cash and cash equivalents at the end of the year$ Change = 64540000-61605000=2935000% Change = 2935000/61605000*100= 4.76% (See appendix p.)Profit for the year$ Change = 79777000-96545000= -16768000 % Change = -16768000/96545000*100= -17.37% (See appendix h.)Bahrain Commercial Facilities Company BCFCCash flow from operating activities$ Change = -10875000-(-4798000)= -6077000% Change = -6077000/-4798000*100= -126.66% (See appendix k.)Cash flow from investing activities$ Change = -4028000-(-3130000)= -898000 % Change = -898000/-3130000*100= -28.69% (See appendix q.)Cash flow from financing activities$ Change = 15894000-494000010954000% Change = 10954000/4940000*100= 221.74% (See appendix q.)Net increase/decrease in cash and cash equivalents$ Change = 991000-(-2988000)= 3979000% Change = 3979000/-2988000*100= -133.17% (See appendix q.)Cash and cash equivalents at the beginning of the year$ Change = 818000-3806000= -2988000% Change = -2988000/3806000*100= -78.51% (See appendix q.)Cash and cash equivalent at the end of the year$ Change = 1809000-818000= 991000% Change = 991000/818000*100= 121.15% (See appendix q.)Profit for the year$ Change = 13068000-12313000= 755000 % Change = 755000/12313000*100= 6.13% (See appendix l.) ("Batelco group annual," ) -19050030480000("Batelco group annual," )-45720027051000("Batelco group annual," )-34290040386000("Batelco group annual," )-14287536195000("Batelco group annual," )-5943605270500("Batelco group annual," )-6953252857500("Alba 2013 annual report,")53911510985500(“Alba 2013 annual report,”)285759525000(“Alba 2012 annual report,”)-19939026670000(“Alba 2013 annual report,”)4762524828500(“Bahrain commercial facilities,”)20002558420009220203492500(“Bahrain commercial fasilities,”)-4343406985000(“Bahrain commercial facilities,”)-39941521145500(“Batelco group annual,”)-37211019113500(“Alba 2013 annual report,”)-32385035369500(“Bahrain commercial facilities,”)-44259522034500 ................
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