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Group Case Study: PART A
Subject Code: MBA403
Cohort – Online T1 2018
Subject Title: Financial and Economic Interpretation and Communication
Suggested time taken to complete 30 minutes
Total Number of Questions: Parts A – E
Total Marks: See assessment description and marking guide under Part B
READ THE FOLLOWING INSTRUCTIONS BEFORE COMMENCING THE CLASS TEST
1. Students may use in ANY materials they wish. Laptops and phones are fine and groups may go on the internet to access any sites they want.
2. Make sure you show all your working and ensure that you clearly note down the numbers you use and the formula you use. Abbreviations are fine.
3. Remember, if you do not have more than three years of data, you should use the closing amount values in the Balance Sheet, and Income Statements rather than the -average-.
You are required to:
a. Carefully choose a ratio that analyses the profitability of an organisation and calculate this for Tennis Australia for 2016 and 2017. (Show your working)
b. Carefully choose a ratio that analyses the liquidity of an organisation and calculate this for Tennis Australia for 2016 and 2017. (Show your working)
c. Carefully choose a ratio that analyses the stability of an organisation and calculate this for Tennis Australia for 2016 and 2017. (Show your working)
d. Explain why you have specifically chosen each ratio and what your findings suggest about this specific organisation’s financial status.
__________________________
a. The ratio chosen to analyze the profitability of Tennis Australia is the return on assets (ROA). ROA is calculated as net income divided by total assets.
ROA for Tennis Australia in 2016:
Net Income: $15,901,738
Total Assets: $163,930,655
ROA = 15,901,738 / 163,930,655 = 0.097 or 9.7%
ROA for Tennis Australia in 2017:
Net Income: $18,682,356
Total Assets: $187,058,892
ROA = 18,682,356 / 187,058,892 = 0.100 or 10.0%
b. The ratio chosen to analyze the liquidity of Tennis Australia is the current ratio. The current ratio is calculated by dividing current assets by current liabilities.
Current ratio for Tennis Australia in 2016:
Current Assets: $90,052,501
Current Liabilities: $38,771,067
Current Ratio = 90,052,501 / 38,771,067 = 2.32
Current ratio for Tennis Australia in 2017:
Current Assets: $93,005,025
Current Liabilities: $41,236,203
Current Ratio = 93,005,025 / 41,236,203 = 2.26
c. The ratio chosen to analyze the stability of Tennis Australia is the debt-to-equity ratio. The debt-to-equity ratio is calculated by dividing total liabilities by total equity.
Debt-to-equity ratio for Tennis Australia in 2016:
Total Liabilities: $27,165,813
Total Equity: $136,764,842
Debt-to-Equity Ratio = 27,165,813 / 136,764,842 = 0.199 or 19.9%
Debt-to-equity ratio for Tennis Australia in 2017:
Total Liabilities: $34,238,439
Total Equity: $152,820,453
Debt-to-Equity Ratio = 34,238,439 / 152,820,453 = 0.224 or 22.4%
d. The return on assets (ROA) ratio was chosen to analyze the profitability of Tennis Australia because it provides an indication of how efficiently the organization is utilizing its assets to generate profits. A higher ROA indicates better profitability.
The current ratio was chosen to analyze the liquidity of Tennis Australia because it provides an indication of the organization’s ability to meet its short-term obligations. A higher current ratio indicates better liquidity.
The debt-to-equity ratio was chosen to analyze the stability of Tennis Australia because it provides an indication of the organization’s financial leverage and risk. A lower debt-to-equity ratio indicates lower risk and greater financial stability.
Based on the calculations, Tennis Australia had a consistent and stable ROA over the two years, indicating that it was efficiently using its assets to generate profits. The current ratio was also consistently high, indicating that Tennis Australia had strong liquidity and could meet its short-term obligations. However, the debt-to-equity ratio increased from 2016 to 2017, indicating that the organization had taken on more debt relative to equity, which could be a cause for concern. Overall, Tennis Australia appears to be in a financially stable position, but monitoring the debt-to-equity ratio would be important moving forward.
