- 20 Marks
CIBG – FRPA 2022 – L3 – Q3 – Smart Co Ltd Financial Position Report
Prepare a report commenting on the financial position of SMART Co Ltd using gearing and liquidity ratios, highlighting areas for further investigation.
Question
SKY CO LTD. is considering acquiring an interest in its competitor. SMART Co LTD. The managing director of SKY Co LTD. has obtained the statements of financial position of SMART Co LTD. for the last three years as shown below. SMART Co LTD. – Statement of financial position at 31st December
| 2019 (GH¢000) | 2020 (GH¢000) | 2021 (GH¢000) | |
|---|---|---|---|
| Non-current assets | |||
| Land and buildings | 11,460 | 12,121 | 11,081 |
| Plant and equipment | 8,896 | 9,020 | 9,130 |
| 20,356 | 21,141 | 20,211 | |
| Current assets | |||
| Inventories | 1,775 | 2,663 | 3,995 |
| Trade receivables | 1,440 | 2,260 | 3,164 |
| Cash | 50 | 53 | 55 |
| 3,265 | 4,976 | 7,214 | |
| Total assets | 23,621 | 26,117 | 27,425 |
| Equity | |||
| Share capital | 8,000 | 8,000 | 8000 |
| Retained earnings | 6,434 | 7,313 | 7,584 |
| 14,434 | 15,313 | 15,584 | |
| Non-current liabilities | |||
| 12% debentures 2022-2025 | 5,000 | 5,000 | 5,000 |
| Current liabilities | |||
| Trade payable | 390 | 388 | 446 |
| Bank | 1,300 | 2,300 | 3,400 |
| Income taxes payable | 897 | 1,420 | 1,195 |
| Dividend payable | 1,600 | 1,696 | 1,800 |
| 4,187 | 5,804 | 6,841 | |
| Total equity and liabilities | 23,621 | 26,117 | 27,425 |
You are required to: Prepare a report for the managing director of SKY Co LTD. commenting on the financial position of SMART Co Ltd. and highlight any areas that require further investigation (using gearing and liquidity ratios only). (20 marks)
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