Blog: Fin621 GDB No. 2 Solution

Semester “FALL 2010”

“Financial Statement analysis(FIN621)”

This is to inform that next Graded Discussion Board (GDB ) will be opened according to the following schedule

Schedule:

Opening Date and Time: January 24, 2011 At 12:01 A.M. (Mid-Night)

Closing Date and Time: January 26, 2011 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

“Analysis of the Profitability of the business ”

Discussion Question

“Suppose you are a loan officer in a bank and Econ Company Limited apply for long term loan in your bank. Your bank is providing the loan to all kinds of businesses . 12% p.a. by analyzing the business and current scenario of the market conditions, you are much confident that the profitability rate of the company will remain same even after debt financing. The profit and loss account of the company shows net income of Rs. 105,000, sales Rs. 4,850,000, interest expense, Rs. 300,000, income tax expense Rs. 5,000 and the gross profit Rs. 4,250,000. 

By considering the information given about the profitability of the company:

1. Do you think that Econ Ltd. has the ability to pay fixed cost of borrowings ________ (Yes or NO).

2. What is the current operating profitability rate of the company ______ 

3. What is the amount of operating expense________

4. What is the amount of operating income______

Instructions: 

You are NOT required to show formula or calculations. Just mention your answers in given format above. Otherwise your GDB will be graded as zero.

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Solution: