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FIN241 International Financial Management Major Assignment Autumn 2010 Due Date: At 5pm on Wednesday 12 May 2010 in Week 10. Place for Submission:...

a. Why are ratios useful? What are the five major categories of ratios? Answer:
1 FIN241 International Financial Management Major Assignment Autumn 2010 Due Date: At 5pm on Wednesday 12 May 2010 in Week 10. Place for Submission: Assignment should be placed in the assignment box, outside the front- office of the School of Accounting and finance located in level 3, building 40. This box will be removed at 5pm on the due day. No assignments handed in late will be received after that time or under the office door. Penalty for Late Submission: Assignment handed in late will be penalised by a deduction of 20% for each day late (any late assignment should be submitted to the subject coordinator directly). Length: Approx. 1,000 words. Format: A written submission is required from each group of students, showing all relevant working and formulae. Reference: In doing this assignment, you are encouraged to refer to the texts, the papers in the reference lists at the end of the chapters and any other material that may assist you in understanding what you are doing in this assignment. Ensure that you give adequate cross references to the sources from which you have gathered information in compiling your report. Marking Criteria: Demonstration of your understanding of underlying theories Computational accuracy Relevance and accuracy of the interpretation of results Appropriate analysis and concise argument Provision of adequate references and evidence for your argument Presentation and style of report Proper citation of others’ work Copies: Students should retain a copy of their assignment. Weighting: 8% of the assessment for FIN241.
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2 CASE: Medical Records International (MRI) MRI has foreign subsidiaries in Italy, Japan, and Indonesia. The Italian and Japanese subsidiaries are self-sustaining operating units, while the Indonesian subsidiary is an integrated foreign entity. The cash flows of the Indonesian subsidiary are integrally tied to the operations in Japan. Tables 1 and 2 display MRI’s consolidated income statements and balance sheets, respectively. Data for 2009 and 2008 are taken from this year’s annual report, which will soon be sent to shareholders. The purpose of this case study is to discuss the financial health of the whole firm. Rick Schmidt, MRI’s CFO, is primarily concerned with communicating MRI’s true financial position to shareholders. Hs has witnessed some of the recent accounting scandals and the resulting lawsuits, and he is determined to honestly report to shareholders and keep MRI’s financial results as transparent as possible. A majority of the company’s stock is held by either institutional or inside investors; however, there is still a substantial portion of the stock traded publicly. Most of the directors have a basic understanding of financial statements, but obviously some know more than others, and it is difficult deciding what to cover and how in-depth the analysis should be. After much discussion, Schmidt concluded that he should briefly over the annual report and basic financial statements, emphasizing their role in shareholders communications. What those thoughts in mind, the following set of questions has compiled. Assume that you are the assistant of Schmidt, you have to prepare answers for other directors. Questions a. What is the annual report? Identify and describe its principal financial statements. What do MRI’s statements say about the company? b. In last year’s annual report, there was a forward-looking statement in the “Management Discussion” section that said: MRI continues to pursue its mission to be a global leader in medical equipment product innovation. MRI has embraced an aggressive investment policy and taken advantage of favourable conditions in world debt markets to bolster MRI’s future. Responsible cost management has allowed MRI to generate greater profitability out of its sales.” Has MRI moved in the direction suggested by the statement? How should Schmidt address this issue in the current annual statement? c. Conduct a full ratio analysis for MRI’s tow most recent years of financial statement. Access MRI’s ratios along the dimensions discussed in lecture(s). From the data in Table 4, how does MRI fare against its competitors? Are any significant trends evident? d. Why are ratios useful? What problems/limitations do ratio analyses suffer from? e. What effect did MRI’s cost management program have on net operating working capital and net operating profit? What effect did the companies activities have on net cash flow and operating cash flow?
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