Analysis of financial Statements…
Nov 18, 2019
Nov 22, 2019
Discussion topic: Analysis of Financial Statements
A fresh graduate from a well-recognized university got a job as a financial analyst in a reputed firm whose responsibility is to forecast and provide an opinion to its valued customers about future and recent investment. The finance manager of the firm wants to ascertain knowledge of the graduate and provided a project for valuation of two companies like Company A and Company B. The main motive of the project is to check the management effectiveness for shareholders’ wealth maximization.
In the past, management valued the decisions about managerial effectiveness for wealth maximization on the basis of Economic Value Added (EVA). Therefore, the graduate focuses EVA because EVA is better to measure managerial effectiveness. The management of the firm provided following information of two startup ventures to graduate
|Company A||Company B|
|Current stock price (in Rs.)||12.5||18|
|Total assets (in Rs.)||30,000,000||50,000,000|
|Total liabilities (in Rs.)||20,000,000||35,000,000|
|Interest (in Rs.)||700,000||800,000|
|Tax (in Rs.)||780,000||690,000|
|NET INCOME (in Rs.)||1,820,000||1,610,000|
|Cost of Capital (in Rs.)||900,000||1,100,000|
|Outstanding share (No)||1,200,000||1,100,000|
Calculate Economic Valued Added (EVA) of both Companies.
Based on the calculations, which company will you suggest for investment and why? (Your selection should be supported with logical reasoning)
Note: Complete Calculations for EVA are mandatory; marks will be deducted on providing just answers).
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Best of Luck!!