Refer to the following financial statements of Merdu Sdn. Bhd. for 2020 and 2019: Merdu Sdn. Bhd. Balance Sheets 31 December (in millions) 2020 2019 Assets Current assets Cash Acount receivable (net) Inventories Other current assets Total current assets Property (net) Other assets Total assets RM460 1,188 1,132 247 3,027 3,281 5,593 RM11,901 RM444 1,190 1,056 225 2,915 3,128 5,804 RM11,847 Liabilities and Stockholders’ Equity Current liabilities Long-term liabilities Stockholders’ equity – common Total liabilities and stockholders’ equity RM3,313 6,826 1,762 RM11,901 RM3,184 6,509 2,154 RM11,847 Merdu Sdn. Bhd. Income Statements For the year ended 31 December (in millions) 2020 2019 Net sales Cost of goods sold Gross profit Selling and administrative expenses Income from operations RM13,198 7,750 5,448 3,472 1,976 RM12,397 7,108 5,289 3,299 1,990 Interest expense Other (income) expense, net Income before income taxes Income tax expense Net income 233 11 1,732 503 1,229 248 0 1,742 502 1,240 Required: Analyse Merdu’s financial statement. Include the following ratios for 2020 and discuss your findings (2019 values are provided for comparison): Return on common stockholders’ equity (year 2019 – 56%)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Refer to the following financial statements of Merdu Sdn. Bhd. for 2020 and 2019:
Merdu Sdn. Bhd.
Balance Sheets
31 December (in millions)
|
|
2020 |
2019 |
|
Assets Current assets Cash Acount receivable (net) Inventories Other current assets Total current assets Property (net) Other assets Total assets |
RM460 1,188 1,132 247 3,027 3,281 5,593 RM11,901
|
RM444 1,190 1,056 225 2,915 3,128 5,804 RM11,847 |
|
Liabilities and Current liabilities Long-term liabilities Stockholders’ equity – common Total liabilities and stockholders’ equity |
RM3,313 6,826 1,762 RM11,901 |
RM3,184 6,509 2,154 RM11,847
|
Merdu Sdn. Bhd.
Income Statements
For the year ended 31 December (in millions)
|
|
2020 |
2019 |
|
Net sales Cost of goods sold Gross profit Selling and administrative expenses Income from operations |
RM13,198 7,750 5,448 3,472 1,976 |
RM12,397 7,108 5,289 3,299 1,990 |
|
Interest expense Other (income) expense, net Income before income taxes Income tax expense Net income |
233 11 1,732 503 1,229
|
248 0 1,742 502 1,240 |
Required:
Analyse Merdu’s financial statement. Include the following ratios for 2020 and discuss your findings (2019 values are provided for comparison):
- Return on common stockholders’ equity (year 2019 – 56%)
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