MCBFI – APR 2023 – L4 – Q1 – Rights of Ordinary Shareholders and Businesses at AGM
Discuss the specific rights of ordinary shareholders and the typical businesses handled at the Annual General Meeting for listed multinational banks in Ghana facing earnings challenges.
In the midst of the financial and economic crises in Ghana, the finance and banking sub-sector is having challenges with their earnings/income. The Shareholders of Republic Bank PLC, SG Bank PLC, and Standard Chartered Bank PLC, all listed companies on the Ghanaian Bourse are upbeat in respect of their earnings on the corporate financial performance. These Multinational Corporations are likely not to meet the expectations of their shareholders, both local and foreign. In your opinion,
(a) What specific rights do the Ordinary Shareholders have? (15 marks)
(b) What businesses are likely to be dealt with at the Annual General Meeting of these companies? (15 marks)
Potco PLC is a listed Ghanaian company that produces textile prints for both local and African markets. As at the year ended 31 March 2023, the company made a Gross Profit of GH$12,150. Cost of Sales for the year was GH$77,850 and Operating Profit Before Interest and Tax was GH$47,130. Finance Cost for the year was GH$920 and Tax Charged to Profit or Loss was GH$1,400.
The Inventory Turnover was 3.6 times. Dividend Paid Per Share was GH$0. 36 resulting in a Dividend Yield of 6 %. Current Assets consist of Inventory, Cash and Trade Receivables.
Extracts from the Statement of Financial Position as at 31 March 2023 were as follows: GH$
| Non-Current Assets | 63,320 | | Current Asset (excluding Inventory and Cash) | 18,605 | | Current Liabilities | 27,600 | | Shareholder’s Fund | 58,480 | | Cash | 6,000 | | 10% Debenture | 23,500 | | Share Capital (@ GH63) | 18,000 |
The following ratios relate to the industry in which Potco Plc belongs to:
| Profit (after Tax) Margin | 4.1% | | Current Ratio | 1.12 | | Return on Capital Employed (ROCE) | 10.0% | | Inventory Turnover | 3.47 | | Receivables Period | 87 days | | Dividend Yield | 5.8% | | EPS Ratio | 12.0 | | Debt/Equity Ratio | 32.6% |
You are required to: a) As far as the above information permits, compute the following ratios for Potco PLC. i. Profit (after Tax) Margin ii. Current Ratio iii. Return on Capital Employed (ROCE) iv. Receivables Period v. Price/Earnings Ratio vi. Debt/Equity Ratio (12 marks) b) Using the ratios above, write a report to the Board of Potco PLC to assess the Financial Performance and Financial Position of the entity, relative to its industry. (8 marks) [Total: 20 marks]
========== Question Title: MA – Mar 2025 – L2 – Q1 – Performance analysis
Level: LEVEL 2
Professional Bodies: ICAG
Programs: PROFESSIONAL PROGRAM
Subjects: Management Accounting
Topics: Performance analysis, Financial performance, Internal efficiency, External effectiveness
Series: MARCH 2025
Total Marks: 20
Question Tags: Performance analysis, Financial performance, Internal efficiency, External effectiveness, Revenue calculation, Profitability, Customer satisfaction, Operational efficiency
Question Short Summary: Analyze VAL’s 2024 performance in financial, internal efficiency, and external effectiveness using provided data.
——————————————————————— Question:
QUESTION ONE
Vovome Advisory Limited (VAL) began trading three years ago, on 1 January 2022. It specialises in the provision of expert advice to clients in accountancy, taxation and regulatory compliance. It has a team of professional advisers, each specialising in one of these three areas of advice.
VAL has a target for delivering its services to clients promptly. From the time the client asks for advice, VAL undertakes to provide a formal report to the client within 10 working days.
The following information relates to the financial year ended 31 December 2024:
i) The professional advisers are budgeted to work 220 days each year. They charge GH₵1,400 per day to new clients and GH₵1,200 to established clients.
ii) As a marketing measure intended to win new business, the advisers also give consultations to potential clients on a ‘no fee’ basis. These consultations, which are budgeted to take one day each, are accounted for as business development costs in the marketing budget.
iii) The professional advisers are also required to attend some ‘workshops’ with new clients who are having difficulties with implementing the advice that they have been given by VAL. These workshops, which are also given on a ‘no fee’ basis, are budgeted to last two days.
iv) VAL also has a help desk to provide client support. It responds to telephone and e-mail enquiries from all new and established clients.
v) The team of professional advisers is exactly 50. It is a policy of VAL to limit the team to 50, regardless of the volume of demand for its services.
vi) All professional advisers are paid a salary of GH₵100,000 per year. In addition, they are entitled to share equally in an annual bonus. The bonus is 50% of the amount by which fee income generated exceeds budget minus the revenue forgone as a result of having to give workshops for clients. This revenue forgone is assessed at a notional daily rate of GH₵1,200 per adviser/day.
vii) Operating expenses of the business, excluding salaries of the advisers, were GH₵3,100,000 in 2024. The budget for these expenses was GH₵2,800,000.
Other information:
Budget 2024
Actual 2024
Professional advisers, by category
Accounting
15
10
Tax
20
20
Compliance
15
20
Enquiries about seeking new advice
New clients
2,600
2,200
Established clients
4,000
3,700
Number of chargeable client days
New clients
2,600
2,750
Established clients
5,100
5,500
Average client days per job
4
4
Mix of chargeable client days
Accounting
1,155
1,650
Tax
1,540
3,300
Compliance
1,155
3,300
The following are actual results for each of the three years 2022-2024
2022
2023
2024
Number of clients
160
248
347
Number of complaints from clients
50
75
95
Number of accounts in dispute
10
7
5
Support desk: Percentage of calls resolved
86%
94%
97%
Percentage of jobs completed within 10 days
90%
95%
98%
Average time to complete a job (days)
12.6
10.7
9.5
Chargeable client days
7,200
7,750
8,250
Number of consultations (business development)
50
100
150
Number of workshops given
110
135
165
Revenue (GH₵000)
8,920
9,740
?
Net profit (GH₵000)
1,740
1,940
?
Required:
Using the information provided, analyse and discuss the performance of VAL for the year ended 31 December 2024, under the following headings:
a) Financial performance and competitiveness;
b) Internal efficiency; and
c) External effectiveness.
Compute adjusted financial ratios for 2022 and 2023, excluding business unit sale, and assess Ben Garzy LTD’s financial performance post-sale and IT system deployment.
Ben Garzy LTD has recently undertaken significant strategic initiatives, including the sale of a key business unit and the implementation of a new information technology (IT) system aimed at enhancing operational efficiency.
Below are excerpts from the company’s most recent financial statements:
Income Statements for the Year ended 31 December
2023 GH¢’000
2022 GH¢’000
Revenue
45,000
60,000
Cost of Sales
(27,000)
(36,000)
Gross Profit
18,000
24,000
Gain on Sale of Business Unit
2,000
–
Distribution Expenses
(4,000)
(6,000)
Administrative Costs
(5,500)
(3,800)
Finance Costs
(600)
(1,200)
Profit Before Tax
9,900
13,000
Tax Expense
(2,500)
(3,900)
Net Profit
7,400
9,100
Additional Information:
On 1 January 2023, Ben Garzy LTD completed the sale of a business unit for GH¢10 million, resulting in a gain of GH¢2 million. This sale was approved by shareholders, who received a special dividend of GH¢0.50 per share from the proceeds. The business unit’s financial performance included in the 2022 income statement was as follows:
Revenue: GH¢20,000
Cost of Sales: GH¢12,000
Gross Profit: GH¢8,000
Distribution Costs: GH¢1,500
Administrative Expenses: GH¢2,000
Profit Before Interest and Tax: GH¢4,500
During 2023, Ben Garzy LTD deployed an advanced IT system across its operations to enhance efficiency, reduce costs and improve financial reporting accuracy. This development is expected to influence the company’s financial metrics and operational outcomes.
The following financial ratios were calculated for Ben Garzy LTD for the year ended 31 December 2022:
Gross Profit Margin: 40.0%
Operating Profit Margin: 21.7%
Return on Capital Employed (ROCE): 44.38%
Net Asset Turnover: 2.73 times
Required:
a) Compute the comparable financial ratios for Ben Garzy LTD;
i) For the year ended 31 December 2022, excluding the financial contribution of the sold business unit.
(6 marks)
ii) For the year ended 31 December 2023, excluding the gain on the sale of the business unit.
(6 marks)
b) Assess the financial performance and position of Ben Garzy LTD as at 31 December 2023, taking into consideration the effects of the business unit sale and the implementation of the new IT system on the company’s operational efficiency and overall financial health.
Ghana Wind Farms LTD, a State-Owned Enterprise (SOE), has appointed a new Board of Directors in January 2023. The new Board, after settling for a year, is interested in assessing their performance for the year 2023 against the performance of the previous Board in the year 2022 through ratio analysis. Below is the financial statement of Ghana Wind Farms LTD for the two years.
Ghana Wind Farms LTD
Statement of Profit or Loss for the Year Ended 31 December 2023
2023 (GH¢)
2022 (GH¢)
Revenue
9,860,000
6,218,000
Direct Cost
(5,905,000)
(5,822,000)
Gross Profit
3,955,000
396,000
Distribution Costs
(297,000)
(264,000)
Administrative Expenses
(505,000)
(455,000)
Other Income
236,000
13,000
Other Gains
–
1,482,000
Operating Profit
3,389,000
1,172,000
Finance Cost
(1,000,000)
(334,000)
Profit Before Tax Expense
2,389,000
838,000
Tax Expense
(500,000)
(144,000)
Profit After Tax
1,889,000
694,000
Ghana Wind Farms LTD
Statement of Financial Position as at 31 December 2023
2023 (GH¢)
2022 (GH¢)
ASSETS
Non-Current Assets
Property, Plant & Equipment
17,000,000
15,000,000
Investment
5,000
2,000
Advances & Loans
–
30,000
Total Non-Current Assets
17,005,000
15,032,000
Current Assets
Inventories
687,000
546,000
Trade and Other Receivables
2,829,000
1,978,000
Prepayments
87,000
42,000
Cash and Cash Equivalents
383,000
434,000
Total Current Assets
3,986,000
3,000,000
TOTAL ASSETS
20,991,000
18,032,000
EQUITY & LIABILITIES
Equity
Government Equity
8,000
8,000
Other Government Equity
613,000
306,000
Capital Surplus
8,471,000
7,599,000
Income Surplus
(1,434,000)
478,000
Total Equity
7,970,000
8,697,000
Non-Current Liabilities
Deferred Credit
6,692,000
670,000
Deferred Tax Liabilities
2,498,000
2,572,000
Borrowings (Due After One Year)
1,297,000
950,000
Total Non-Current Liabilities
10,487,000
4,192,000
Current Liabilities
Bank Overdraft
166,000
180,000
Provision for Company Tax
109,000
109,000
Trade and Other Payables
1,820,000
4,516,000
Borrowings (Due Within One Year)
439,000
338,000
Total Current Liabilities
2,534,000
5,143,000
Total Liabilities
13,021,000
9,335,000
TOTAL EQUITY AND LIABILITIES
20,991,000
18,032,000
Required:
a) Compute the following ratios:
i) Current Ratio ii) Quick Ratio iii) Inventory Turnover (Days) iv) Trade Receivable Collection Period (Days) v) Trade Payables Period (Days) vi) Working Capital Cycle vii) Interest Cover Ratio viii) Total Debt – Total Asset Ratio
Dondo LTD is a manufacturing company based in Nsawam. The following data represents the budgeted performance of Dondo LTD for the year 2025:
Amount (GH¢’000)
Profit
660
Plant and equipment (net of depreciation)
1,560
Working capital
750
Dondo LTD is considering undertaking the following separate one-off transactions:
A cash discount of GH¢16,000 will be offered to its customers annually. This will, on average, reduce the trade receivables figure by GH¢60,000.
An increase in average inventories by GH¢80,000 throughout the year. The increased inventory level is expected to increase sales, resulting in GH¢30,000 increased contribution per annum.
At the beginning of the year, the company will buy a plant worth GH¢360,000. This is expected to reduce operating costs by GH¢105,000. The plant has a five-year useful life with nil residual value.
Required:
i) Compute the ROI for each of the one-off transactions above. ii) Advise Dondo LTD on whether the above one-off transactions should be carried out.
Jack Limited is a family-owned business that has grown strongly in the last 50 years. The key objective of the company is to maximise the family’s wealth through their shareholdings. Recently, the directors introduced value-based management, using Economic Value Added (EVA) as the index for measuring performance.
You are provided with the following financial information:
Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2015:
₦’million
2015
Operating profit
340.0
Finance charges
(115.0)
Profit before tax
225.0
Tax at 25%
(56.3)
Profit after tax
168.7
Notes
Notes
2015 (₦’m)
2014 (₦’m)
(i) Capital employed – from the Statement of Financial Position
6,285
6,185
(ii) Operating costs:
Depreciation
295
285
Provision for doubtful debts
10
2.5
Research and development
60
–
Other non-cash expenses
35
30
Marketing expenses
50
45
(iii) Economic depreciation is assessed to be ₦415 in 2015. Economic depreciation includes any appropriate amortisation adjustments. In previous years, it can be assumed that economic and accounting depreciation were the same.
(iv) Tax is the cash paid in the current year (₦45million) and an adjustment of ₦2.5million for deferred tax provisions. There was no deferred tax balance prior to 2015.
(v) The provision for doubtful debts was ₦22.5million on the 2015 Statement of Financial Position.
(vi) Research and development cost is not capitalised in the accounts. It relates to a new project that will be developed over five years and is expected to be of long-term benefit to the company. The first year of this project is 2015.
(vii) The company has been spending heavily on marketing each year to build its brand long term.
(viii) Estimated cost of capital of the company:
Equity
16%
Debt (pre-tax)
5%
(ix) Gearing (Debt/Equity) Ratio 1.5: 1
Required: a. Calculate, showing all relevant workings, the Economic Value Added (EVA) for the year ended December 31, 2015. Make use of the adjusted opening capital employed. Comment on your result and make appropriate recommendations. (15 Marks)
b. Irrespective of your answer in (a) above, assume the company’s current EVA is ₦120million and that this will decline annually by 2% for the next ten years and then increase by 4% per annum in perpetuity. Assume the following for this part only:
Cost of equity 14%
WACC 10%
Calculate the market value added (MVA) by the company. Show all workings. (5 Marks)
The directors of Duranga Plc. have learned that corporate reporting could be improved by adopting the International Integrated Reporting Council’s Framework for Integrated Reporting. The directors believe that International Financial Reporting Standards (IFRS), which the company has recently adopted following the decision of the Federal Executive Council, are already extensive and provide stakeholders with a comprehensive understanding of its financial position and performance for the year. They believe that with over 100 countries adopting IFRS, their financial statements speak the international financial reporting language and practice. In particular, statements of cash flows, which the company prepares in accordance with IAS 7, enable stakeholders to assess the liquidity, solvency, and financial adaptability of a business. They are concerned that any additional disclosures could be excessive and obscure the most useful information within a set of financial statements. This is against the backdrop of a recent effort by the IASB on excessive disclosures in financial statements. They are therefore unsure of the rationale for the implementation of a separate or combined integrated report.
Required:
Discuss the extent to which statements of cash flow provide stakeholders with useful information about an entity and whether this information would be improved by the entity introducing an Integrated Report. (6 Marks)
An annual report is a comprehensive report on a company’s activities intended to give information about the company’s activities and financial performance. In addition to the audited financial statements, annual reports contain a great deal of extra information which could be financial and non-financial. The extra information provided may be required by law, hence, it is mandatory. However, many companies provide additional information not required by law, on a voluntary basis.
Required:
(a) Identify THREE of such reports that are voluntarily disclosed in annual reports of Nigerian companies. (3 Marks)
(b) Why would a company disclose information not required by law in its annual report? Propose FOUR reasons for and give any TWO limitations of such disclosures. (7 Marks)
The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc had sought your professional advice on the application of IAS 33.
a. You are required to advise the management of Soar Plc on the:
i. Significance of earnings per share. (5 marks)
ii. Shortcomings of earnings per share. (5 marks)
b. The directors of Soar Plc have decided to replace most of the existing plant and machinery which are now obsolete during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.
In order to improve liquidity, the directors decided to make a new issue of 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and a further N600,000 4% convertible loan notes on June 1, 2015. The terms of issue would provide for conversion into ordinary shares as stated below:
On September 30
Number of shares per N100 of loan stock
2015
120
2016
125
2017
118
2018
122
The ordinary shares issued would rank for dividend in the current year. The following relates to the company for the period ended September 30, 2015:
Profit before interest and tax is N850,000.
Effective rate of company tax on profit is 30% and the basic EPS for the year ended September 30, 2014, was 48 kobo.
The company had issued as at September 30, 2014, the following:
2,000,000 ordinary shares of 50 kobo each fully paid.
400,000 12% irredeemable preference shares of N1 each fully paid.
300,000 10% redeemable preference shares of N1 each fully paid.
Required:
Calculate for Soar Plc for the year ended September 30, 2015:
i. Basic earnings per share (5 marks).
ii. Fully diluted earnings per share (5 marks).
Presented below is the Statement of Financial Performance of Okagya Municipal Assembly for the year ended 31 December 2020.
GH¢’million
2020 Actual
2019 Actual
2020 Budget
Revenues
Decentralized Transfer
16,450
12,400
20,200
IGF
22,200
25,600
34,100
Donation and Grants
1,300
1,900
2,000
Total Revenue
39,950
39,900
56,300
Expenditure
Compensation for employees
29,800
24,300
25,900
Use of goods and services
10,300
9,860
18,000
Consumption of fixed Asset
240
220
0
Interest
19,660
14,550
16,780
Grants
510
430
1,920
Other expenses
1,600
1,430
2,450
Total Expenditure
62,110
50,790
65,050
Net Operation Result
(22,160)
(10,890)
(8,750)
Required:
i) Prepare a Common Size Statement of Financial Performance for the year ended 31 December 2020.
(6 marks)
ii) Based on the Common Size Statement of Financial Performance prepared in (i) above, write a report analyzing the financial performance of Okagya Municipal Assembly in line with the Recommended Practice Guide 2, Financial Statement Discussion and Analysis.
Additional Information:
i) The Controller and Accountant General uses the modified accrual accounting concept in the preparation of its accounts.
ii) Established Post salaries of GH¢2,937,000 were outstanding as of 31/12/2018.
iii) Interest on domestic and external loans is provided for at 20% and 15%, respectively.
iv) The Central Government depreciates assets on a cost basis using the schedule below:
Class of Assets
Number of Years
Building
50 years
Plant, Machinery, Furniture, and Fittings
20 years
Transport Equipment
7 years
Computer Software and License
5 years
v) Provisions:
Specific provision for bad debt is made for loans receivables and investments as and when their non-recoverability is determined, and where a request is made for write-off to parliament. This provision is set at 3% and 5%, respectively.
Required:
a) Prepare the Statement of Financial Performance of the Consolidated Fund for the year ended 31/12/2018.
(10 marks)
b) Prepare the Statement of Financial Position for the Consolidated Fund as at 31/12/2018.
(7 marks)
c) State and explain THREE (3) Accounting Policies that usually accompany Consolidated Fund Financial Statements.
(3 marks)
Presented below is the Statement of Financial Performance of the Consolidated Fund of Ghana.
Revenue and Expenditure Statement of the Consolidated Fund for the year ended 31 December, 2018 Required:
Based on a Common Size Statement of Financial Performance, write a report discussing and analyzing the financial performance of the Consolidated Fund in line with the Recommended Practice Guide 2, Financial Statement Discussion and Analysis.
The Board of Directors of Suncity Limited are reviewing the performance of their business for the year 2014 and are considering using ratio analysis for this purpose. You have been presented with the following statement of comprehensive income for the years 2013 and 2014:
2014 (GH₵’000)
2013 (GH₵’000)
Sales
42,000
30,000
Less: cost of sales
33,200
21,500
Gross profit
8,800
8,500
Operating expenses
2,750
2,120
Profit before finance charges
6,050
6,380
Finance charges
500
700
Profit before tax
5,550
5,680
Taxation
1,110
1,136
Profit after tax transferred to income surplus
4,440
4,544
Required:
i. Compute common size ratios for Suncity Limited for 2013 and 2014 (4 marks)
ii. Comment on any four of the ratios computed (2 marks)
