Question

2018 NZ$M Kevin Construction Limited Vertical Analysis Report As at 30 June 2019 2019 NZ$M Assets Current assets Cash and cash equivalents 7.14% Short-term investments 0.16% Current tax assets 0.18% Net receivables 18.67% 1,830 Inventory 20.22% 1,982 Other current assets 0.10% 10 Total current assets 4,556 Non-current assets Property plant and equipment 28.56% 2,800 Other non-current assets 24.97% 2,448 Total non-current assets 5,248 Total assets 100.00% 9,804 700 16 18 500 2.02% 5.75% 0.02% 18.78% 20.40% 0.32% 1,634 1,775 28 4,115 24.13% 28.59% 2,100 2,488 4,588 8,703 100.00% 17.21% 3.29% 3.93% 18.50% 5.70% 3.33% Liabilities Current liabilities Accounts payable Borrowings Other current liabilities Total current liabilities Borrowings Other non-current liabilities Total non-current liabilities Total liabilities . 1,687 323 385 2,395 2,284 233 2,517 4,912 1,610 496 290 2,396 1,607 262 1,869 4,265 23.30% 2.38% 18.46% 3.01% - - Equity Share capital Total liabilities and equity 49.90% 100.00% 4,892 50.99% 9,804 100.00% 4,438 8,703

According to the Vertical Analysis Report, identify all the significant items and discuss the follow questions: 1. What is the trend of each significant item from 2018 to 2019? 2. What are the reasons that cause those changes? (Discuss at least two reasons). If you make any assumption, please clearly state in your answer. (Hint: It is assumed that |5%| change or above over the year is significant, for instance, the percentage change of “Inventory” is 20.22%-20.40%=-0.18%, so this item is NOT a significant item.) (maximum of 300 words)

Identify one ratio a bank lender would be particularly interested in and explain the reason.(maximum of 150 words)

Answer 1

1 There are Change in the Non Current Borrowings from 2018 to 2019 i.e 18.46% to 23.30%

Kevin Construction Limited has taken Long Term Loan from the Bank /NBFC for the Purchase of Property Plant & equipment that is the reason of the Non Current borrowing is increasing from 2018 to 2019.

Property plant & equipment is also increase from 24.13% to 28.56%.

2 There are change in the Short term investment from 2018 to 2019 i.e. 5.75% to 0.16% that result in the cash and cash equivalents has been increased from 2.02% to 7.04%.

Bank has consider the Debt Equity Ratio because the Debt Equity ratio is consider a key financial metric because it consider potential financial risk. A higher D/E ratio means that more of a company's financing is from debt versus issuing shares of equity. Banks tend to have higher D/E ratios because they borrow capital in order to lend to customers.

For example: Total debt of a business is worth $60 million and the total equity is worth $130 million, then the debt-to-equity is 0.46, its mean the firm has 46 cents in leverage.