This document contains an assignment on CRR-based financing and financial ratios problems. It includes answers to questions on classifying assets and liabilities, calculating quick ratio, current ratio, return on equity, and net profitability ratio based on data provided. It also contains calculations to determine monthly installment, selling price, profit amount, redemption amount, and Ibra amount for an Islamic financing case study.

1. PRINCIPLES AND PRACTICE OF ISLAMIC BANKING
(MIFB 6023)
ASSIGNMENT 2
CRR-based Financing and Financial Ratios Problems
Prepared by
Mohamed Ibrahim Ismail
Matric Number: A1111477M04
Session: 2011/2012
Semester: First Semester
Date: 21st September 2011
Submitted to:
Assoc. Prof. Dr. Ahmed Fauzi bin Idris

2. 1
Answers to question 1
Classification of Assets
Current assets
Cash, marketable securities, accounts receivable, prepaid expenses, inventories
Summation of Current Assets
Current assets = cash + marketable securities + accounts receivable + prepaid expense +
inventories
Fixed assets
Land, plant and equipment
______________________________________________________________________________
Classification of Liabilities
Current liabilities
Accounts payable and accrued expenses
Summation of Current Liabilities
Current liabilities = accounts payable + accrued expenses
Long term liabilities
Bonds payable
______________________________________________________________________________
Other financial data from the balance sheet and income statement
Sales =6500, 000 (first item in the income statement)
Net Profit= Net Income=805,000 (last item in the income statement)
Common equity =common stock + retained profit =700,000 + 8200, 000 =15,200,000 (fourth
and fifth item under liabilities and equities from the balance sheet)

3. 2
Formulae used:
Quick ratio =
Current ratio =
Return on Equity (RoE) = *100%
Net Profitability ratio = *100%
a. Quick ratio =
= = 2.19
Quick ratio = 2.19 times.
The firm is actually liquid because the ratio is greater than 1. This indicates that the chance the
firm can pay creditors when payments are due is very high. For every RM1.00 of current
liabilities, the firm has RM 2.19 to be ready for a payment.
The firm is more liquid than the industrial average which is 1.75 times, the SME Corporation is
liquid enough to pay any short term debt.

4. 3
b. Current ratio =
= =2.75
Current ratio = 2.75 times.
The firm is actually liquid because the ratio is greater than 1. This indicates that the chance the
firm can pay creditors when payments are due is very high. For every RM1.00 of current
liabilities, the firm has RM 2.75 to be ready for a payment.
The firm is more liquid than the industrial average which is 2.05 times, the Corporation is liquid
to pay any short term debt.
c. Return on Equity (RoE) = *100%
= *100% = 5.29%
Return on Equity = 5.29%.
The firm’ return on equity is lower than the industrial average which is 10%. This indicates that
the managers of SME Corporation are not maximizing shareholders’ wealth.

5. 4
d. Net Profitability ratio = *100%
= *100% = 12.38%
Net Profitability ratio = 12.38%
The firm has lower profitability ratio than the industrial average which is 18%. This is an
indication that the corporation’s assets and capital are not generating profit efficiently.
_____________________________________________________________________________________
Section 2
Given
Market value of the land =RM 500000
Forced value of land = RM 4900, 000
Financing amount = RM 4800, 000
Profit rate = 8%
Financing period = 7years
Annuity factor = 1.55862096/100 =0.015586209 (from annuity factor table)
Note: since the cost of financing is less than the forced sale, the bank can finance the land. A
bank will only finance at forced sale or lower but NOT market price. This is because; the bank
has to avoid taking risks in such a transaction.
Note: Periodic repayment is on monthly basis in this case, hence 7years * 12 =84

6. 5
Calculation
Monthly installment = financing amount * annuity factor
= 4800,000 * 0.015586209
= RM 74,813.81
Selling price = monthly installment * total number of periodic repayments
= 74,813.81 * 84
= RM 6,284,360.04
Profit amount = Selling price –Financing amount
= 6,284,360.04 – 4,800,000
= RM 1484,360.04
Redemption Amount =
= =
= = RM 1371,428.57
Ibra amount =
=
=
= RM 424,102.87