Level (SQ): Level 2

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  • 16 Marks

FM – L2 – Q8 – Introduction to financial management

Describe four key factors indicative of a successful organization.

(A). One of the key expectations of the Finance Manager is to ensure the success of the organisation. Describe FOUR (4) key factors that are indicative of a successful organisation.

(B). The quarterly report of the treasury unit of Saruwa Limited contains a paragraph on government policy targets and progress towards achievement of the targets. The technical director has expressed disagreement about the time spent in discussing these policies as wasteful because the policies have no relevance to the business activities of the confectionery company.

Required:

As Head of Finance, you have been tasked to discuss SIX (6) points on government revenue mobilisation policies to agree or disagree with the Technical Director’s position.

(C). (i) Distinguish between fiscal policy and monetary policy.

(ii) Explain TWO adverse effects a contractionary fiscal policy could have on businesses.

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  • 10 Marks

FM – L2 – Q7 – Dividend policy

Discuss if share option schemes for directors/employees benefit shareholders of Sunlit Enterprises.

Discuss whether share option schemes for either directors or employees generally, can benefit the interests of the shareholders in Sunlit Enterprises.

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  • 20 Marks

FM – L2 – Q5 – Economic and regulatory environment

Explain how government economic policies influence company decision-making.

(A). Explain how a government might seek to influence decision-making by companies through its economic policies.

(B). Explain how a government’s ‘green policies’ might affect capital investment decisions by companies.

(C)  Explain how a government’s competition policy might affect the financial and business strategies of major companies.

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  • 25 Marks

FM – L2 – Q4 – Financial Objectives

Justify and criticize the assumption that a company's objective is to maximize shareholder wealth

(A)

Justify and criticize the usual assumption made in financial management literature that the objective of a company is to maximize the wealth of the shareholders. (Do not consider how this wealth is to be measured.)

(B)

Outline other goals that companies claim to follow, and explain why these might be adopted in preference to the maximization of shareholder wealth.

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  • 8 Marks

MA – L2 – Q58 – Performance analysis

Calculate and define financial ratios for Akwasi and Kofi, two manufacturing companies, using their financial statements.

The statements of profit or loss and statements of financial position of two manufacturing companies in the same sector are set out below.

Statement of profit or loss for Akwasi

ZC¢
Revenue 150,000
Cost of sales (60,000)
Gross profit 90,000
Interest payable (500)
Distribution costs (13,000)
Administrative expenses (15,000)
Profit before tax 61,500
Income tax expense (16,605)
Profit for the period 44,895

Statements of financial position for Akwasi and Kofi

Akwasi Kofi
ZC¢ ZC¢
Assets
Non-current assets
Property 280,000
Plant and equipment 190,000 500,000
190,000 780,000
Current assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 22,000
49,500 153,250
Total assets 240,000 933,250
Equity and liabilities
Equity
Share capital 156,000 174,750
Retained earnings 51,395 390,830
207,395 565,580
Non-current liabilities
Long-term debt 10,000 250,000
Current liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250

Required:

Define and calculate the following ratios for each company:

(a) Gross profit percentage (2 marks)

(b) Net profit percentage (2 marks)

(c) Return on capital employed (2 marks)

(d) Asset turnover (2 marks)

The statements of profit or loss and statements of financial position of two manufacturing companies in the same sector are set out below.

Statement of profit or loss for Akwasi

ZC¢
Revenue 150,000
Cost of sales (60,000)
Gross profit 90,000
Interest payable (500)
Distribution costs (13,000)
Administrative expenses (15,000)
Profit before tax 61,500
Income tax expense (16,605)
Profit for the period 44,895

Statements of financial position for Akwasi and Kofi

Akwasi Kofi
ZC¢ ZC¢
Assets
Non-current assets
Property 280,000
Plant and equipment 190,000 500,000
190,000 780,000
Current assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 22,000
49,500 153,250
Total assets 240,000 933,250
Equity and liabilities
Equity
Share capital 156,000 174,750
Retained earnings 51,395 390,830
207,395 565,580
Non-current liabilities
Long-term debt 10,000 250,000
Current liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250

Required:

Define and calculate the following ratios for each company:

(a) Gross profit percentage (2 marks)

(b) Net profit percentage (2 marks)

(c) Return on capital employed (2 marks)

(d) Asset turnover (2 marks)

The statements of profit or loss and statements of financial position of two manufacturing companies in the same sector are set out below.

Statement of profit or loss for Akwasi

ZC¢
Revenue 150,000
Cost of sales (60,000)
Gross profit 90,000
Interest payable (500)
Distribution costs (13,000)
Administrative expenses (15,000)
Profit before tax 61,500
Income tax expense (16,605)
Profit for the period 44,895

Statements of financial position for Akwasi and Kofi

Akwasi Kofi
ZC¢ ZC¢
Assets
Non-current assets
Property 280,000
Plant and equipment 190,000 500,000
190,000 780,000
Current assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 22,000
49,500 153,250
Total assets 240,000 933,250
Equity and liabilities
Equity
Share capital 156,000 174,750
Retained earnings 51,395 390,830
207,395 565,580
Non-current liabilities
Long-term debt 10,000 250,000
Current liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250

Required:

Define and calculate the following ratios for each company:

(a) Gross profit percentage

(b) Net profit percentage

(c) Return on capital employed

(d) Asset turnover

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  • 15 Marks

FM – L2 – Q3 – Corporate Social Responsibility

Identify main issues covered by a company's corporate social responsibility policy.

(A). What are the main issues that might be covered by a company’s policy on corporate social responsibility?

(B). What types of company are most likely to face CSR risks?

(C). What is the nature of CSR risk?

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  • 21 Marks

FM – L2 – Q2 – Economic and regulatory environment

Explain why managers and owners may have different objectives, with examples of conflicts.

(a) Managers and owners of businesses may not have the same objectives. Explain this statement, illustrating your answer with examples of possible conflicts of interest.

(b) In what respects can it be argued that companies need to exercise corporate social responsibility?

(c) How do the objectives of public sector organisations differ from those of private sector companies?

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  • 8 Marks

FM – L2 – Q1 – Sources of finance: equity

Calculate and comment on ratios relevant to investors for SunnyCorp, including EPS, PE ratio, dividend yield, dividend cover, interest yield, and gearing.

The following figures have been extracted from the annual accounts of SunnyCorp:

Item Amount
Issued share capital 1,000,000 ordinary shares of ZAR 1 each, fully paid
Issued debt capital ZAR 250,000 10% debentures
Reserves
Capital (share premium reserve) ZAR 200,000
Accumulated profits
Profit and distributions
Profit for the year ZAR 600,000 (before interest and tax)
Ordinary dividend payments ZAR 0.20 per share

The current market price of SunnyCorp’s equity shares is ZAR 3.20 each. Its debentures are priced at ZAR 90 per cent. The company’s rate of corporation tax (income tax) is 30%.

Required:
Calculate the ratios that are likely to be of interest to an investor or potential investor in SunnyCorp.
Comment on each:
(8 marks for calculations, 8 marks for comments)

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  • 18 Marks

MA – L2 – Q57 – Performance analysis

Evaluate KINTAMPO LTD's performance using financial ratios for two divisions, Amir and Mo.

Zestco is an importer and retailer of vegetable oils. Extracts from the financial statements for this year and last are set out below.

Statements of profit or loss for the years ended 30 September

Year 7 Year 6
ZC¢’000 ZC¢’000
Revenue 2,160 1,806
Cost of sales (1,755) (1,444)
Gross profit 405 362
Distribution costs (130) (108)
Administrative expenses (260) (198)
Profit before tax 15 56
Income tax expense (6) (3)
Profit for the period 9 53

Statements of financial position as of 30 September

Year 7 Year 6
ZC¢’000 ZC¢’000
Assets
Non-current assets
Property, plant and equipment 78 72
Current assets
Inventories 106 61
Trade receivables 316 198
Cash 6
428 259
Total assets 506 331
Equity and liabilities
Equity
Ordinary shares 110 85
Preference shares 23 11
Share premium 15
Revaluation reserve 20
Retained earnings 78
Current liabilities
Bank overdraft 49
Trade payables 198
Current tax payable 7
Total equity and liabilities

Required:

Define and calculate the following ratios for each year:

(a) Gross profit percentage

(b) Net profit percentage

(c) Return on capital employed

(d) Asset turnover

(e) Current ratio

(f) Quick ratio

(g) Average receivables collection period

(h) Average payables period

(i) Inventory turnover.

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