AFIN6013 Financial Statement Analysis and Modeling
Exercise 1 – S1 2023
Due Date
The due date of this exercise is 13:00 on Wednesday, 26 April 2023.
Academic Honesty
This is an individual assignment where students are expected to work independently on the
assignment tasks. The similarity of assignment answers will be checked in Turnitin. Any
plagiarism, collusion and other dishonest behavior will be penalised subject to the
university Academic Integrity Policy. You are highly recommended:
•
to keep your workings beyond the access of the other students,
•
not to share your document by any means with another student,
•
not to attend any private tutoring session on this assignment and
•
not to use any assignment help service from a third party.
Assignment Tasks
ERecharge Ltd is a young company focusing on producing and selling lithium batteries. It
has experienced several challenging years in the past due to the COVID19 pandemic but
has managed a stable growth in its earnings. You are hired to provide a consulting service
for ERecharge to forecast its financial performance from 2023 to 2027. The CFO of
ERecharge has provided you with ERecharge’s financial statements in 2022 (Appendix A)
and the following assumptions (Table 1) for your modeling task.
Key assumptions:
Sales growth rate
The company tries to maintain 16% annual growth in its total sales
Variable cost
Fixed cost
The variable cost accounts for 60% of total Sales
ERecharge records $24,000 fixed cost in the total Cost of Sales
1
Wages and salaries expense
Rental expenses
Depreciation rate
Bank loan
Tax rate
Dividend payout ratio
Account receivables
Inventory
Prepaid rental expenses
Equipment
Patent
Bank overdraft
Accounts payable
Wages and salary payable
Share capital
20% of total sales
$234,000 per year
10% of the opening Equipment (gross/at cost)
Interest rate 10% p.a.; ERecharge has to repay $30,000 principal at
the end of every year.
30%
50%
6.5% of total sales
22% of total Cost of Sales
$126,000 constant
ERecharge will increase the Equipment (at cost) by 12% per year
$150,000 constant
Overdraft facility up to $3,000,000 is available at 15% p.a.
15% of total Cost of Sales
25% of Wages and salary expenses
$900,000 constant
Assignment Requirements
1. Based on the information in Appendix A, build a financial model using Excel to project
the financial statements of ERecharge for the financial years ending 30 June in 2023, 2024,
2025, 2026 and 2027. The model should contain an input sheet, a model sheet, an error
checking sheet and three output sheets (Balance Sheet, Income Statement, Cash Flow
Statement). Use a document sheet if you hope to provide some narrative explanations.
Assignment Submission
1. Submit your Excel model to the Turnitin link (Excel model submission). Name your
document as Last name_student ID.xlsx. For example, David Johnson (ID NO. 20122300)
should name his submission as Johnson_20122300.xlsx.
Marking
This assignment will be marked out of 10 marks accounting for 10% of the unit total.
In order to get the full mark, your spreadsheet should be able to make projections in
the same as the model built in the class.
2
Appendix A
ERecharge Ltd Income Statement
for the period ended 30 June 2022
$
Sales revenue
Cost of sales
Gross Profit
Wages and salaries
Rental expenses
Depreciation – Equipment
Operating Profit
Interest Expense
Income tax expense
Net Profit
Dividend
Transferred to retained earnings
3
2,400,000
(1,224,000)
1,176,000
(480,000)
(234,000)
(150,000)
312,000
(30,000)
(84,600)
197,400
(107,400)
90,000
ERecharge Ltd Balance Sheet
as at 30 June 2022
$
ASSETS
Cash at bank
Accounts receivable
Inventory
Prepaid rental expenses
Equipment
Accumulated depreciation – equipment
60,000
156,000
264,000
126,000
1,944,000
(690,000)
Patent
150,000
Total Assets
2,010,000
LIABILITIES AND EQUITY
Accounts payable
Wages and salary payable
Bank loan
Share capital
Retained earnings
Total Liabilities and Equity
4
180,000
120,000
270,000
900,000
540,000
2,010,000
ERecharge Ltd Cash Flow Statement
for the period ended 30 June 2022
$
Cash flow from operating activities
Net profit after tax
add: Depreciation expenses
changes in current assets
changes in current liabilities
Net cashflow from operating activities
Cash flow from investing activities
Capital expenditure
Net cash flow from investing activities
Cash flow from financing activities
Repayment of debt
Dividend
Net cash flow from financing activities
5
197,400
150,000
(12,000)
(54,000)
281,400
-
(144,000)
(144,000)
-
(30,000)
(107,400)
(137,400)
Reconciliation
Net increase in Cash
Opening Cash and Cash Equivalents
60,000
Cumulative Cash
60,000
-