- 20 Marks
Question
Below are IPSAS-compliant financial statements of two developing countries, Borga and Obi Manso for the year ended 31 December 2023 expressed in the local currency of Ghana and published by an international public financial management organization domiciled in Accra, Ghana.
Statement of Financial Performance for the Year ended 31 December 2024
| Borga | Obi Manso | |
|---|---|---|
| GH¢ million | GH¢ million | |
| Revenue | ||
| Tax Revenue | 302,400 | 317,300 |
| Non Tax Revenue | 50,400 | 76,000 |
| Grants and Donations | 10,440 | 5,985 |
| 363,240 | 399,285 | |
| Expenditure | ||
| Employee compensation | 190,512 | 161,880 |
| Goods and Services | 41,208 | 50,350 |
| Consumption of Fixed Assets | 4,680 | 8,550 |
| Interest | 77,880 | 76,000 |
| Social Benefits | 8,160 | 17,100 |
| Subsidies | – | 4,275 |
| Other Expenses | 4,800 | 9,880 |
| 327,240 | 328,035 | |
| Surplus | 36,000 | 71,250 |
Statement of Financial Position as at 31 December 2024
| Borga | Obi Manso | |
|---|---|---|
| GH¢ million | GH¢ million | |
| Assets | ||
| Non-Current Assets | ||
| Property, Plant and Equipment | 96,000 | 180,500 |
| Equity Investments | 42,000 | 33,250 |
| Loans Receivables | 4,800 | 2,850 |
| 142,800 | 216,600 | |
| Current Assets | ||
| Loan Receivables | 33,600 | 37,050 |
| Inventory | 4,800 | 11,400 |
| Cash and Cash Equivalent | 57,600 | 30,400 |
| 96,000 | 78,850 | |
| Total Assets | 238,800 | 295,450 |
| Funds and Liabilities | ||
| Current Liabilities | ||
| Payables | 36,000 | 40,850 |
| Deposits and Trust Monies | 58,800 | 57,000 |
| 94,800 | 97,850 | |
| Non-Current Liabilities | ||
| Domestic Debt | 24,000 | 38,000 |
| External Debt | 50,400 | 85,500 |
| 74,400 | 123,500 | |
| 169,200 | 221,350 | |
| Accumulated Funds | 69,600 | 74,100 |
| Funds and Liabilities | 238,800 | 295,450 |
Required: a) Prepare a paper for presentation at an upcoming PFM forum to evaluate the performance of the two countries using the following metrics: i) Revenue to Total Assets ii) Current Ratio iii) Debt to Owners Fund iv) Accumulated Fund to Total Assets v) Common Size analyses of Tax Revenue, Compensation of Employees and Surplus
b) Using the metrics above, interpret the performance of the two countries under efficiency, short-term liquidity and long-term liquidity/stability of the countries with a metric each.
Answer
a) COMPARATIVE ANALYSES OF BORGA AND OBIMANSO COUNTRIES FINANCIAL PERFORMANCE FOR THE YEAR 2023
Introduction I am grateful for the opportunity to express my thoughts on the above subject to open discussion on the PFM system of the two countries
Evaluation / Calculations Below are the results of the various measures / criteria to facilitate our discussion on the assessment:
| Metric | Borga Calculation | Borga Result | Obimanso Calculation | Obimanso Result |
|---|---|---|---|---|
| i) Revenue to Total Assets | 363,240 / 238,800 | 1.52 | 399,285 / 295,450 | 1.35 |
| ii) Current Ratio | 96,000 / 94,800 | 1.0 | 78,850 / 97,850 | 0.81 |
| iii) Debt to Owners Fund | 74,400 / 69,600 | 1.07 | 123,500 / 74,100 | 1.67 |
| iv) Accumulated Fund to Total Assets | 69,600 / 238,800 | 0.29 | 74,100 / 295,450 | 0.25 |
| v) Common Size Analyses: | ||||
| – Tax Revenue | 302,400 / 363,240 | 83% | 317,300 / 399,285 | 79% |
| – Compensation of Employees | 190,512 / 363,240 | 52% | 161,880 / 399,285 | 41% |
| – Surplus | 36,000 / 363,240 | 10% | 71,250 / 399,285 | 18% |
(b) Analyses and Interpretation
Efficiency Revenue to Total Assets the Revenue to Total Asset tells how the country uses its assets to generate revenue to support the management of the country. In the evaluation, Borga was able to turnover her assets 1.52 times as revenue more than that of Obi Manso’s 1.35 indicating a better efficiency in the management of resources. The other common size computations all seek to reveal the efficiency in the countries’ operations.
Short term Liquidity Current Ratio The current ratio reflects a country’s ability to meet its short-term obligation when they fall due. The two countries both performed poorly with regards to their short-term liquidity situation as their current ratio for the year in question fell below the standard, 2:1. This means they have a very tight short-term liquidity position as they fall due. Nevertheless, Borga performance was better as it records 1:1 against 0.8:1 for Obi Manso.
Long Term Liquidity / Stability Debt to Owners Funds This indicator shows portion of an entity or country’s assets funded through borrowing. It tells how geared a country is. From indicator computed Obi Manso is more geared than Borga hence it is more independent with regards to ownership of her resources though not too wide. Debt to Owners funds similarly also depicts stability of a country with reference to financing mix. Both countries obvious from the computation are highly funded or supported through debt as the people funds are less than funds from debt. This means the countries are both higher geared though Borga situation is better than Obi Manso.
Conclusion From the evaluation, though Obi Manso made an impressive surplus for the year under review than Borga relatively showing strong efficiency in operation, it is also obvious that Borga has better standing with regards to liquidity and gearing. Hence both countries need to improve on their financial management practices to achieve favorable results in the immediate future to avoid poor credit rating.
- Level: Level 2
- Topic: Financial Statements Discussion and Analysis
- Series: MARCH 2025
- Uploader: Salamat Hamid