Question Tag: Financial Ratios

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  • 5 Marks

FA – Nov 2024 – L1 – Q5c – Profitability vs Liquidity Ratios

Explain the difference between profitability and liquidity ratios and provide two examples of each.

Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials.

Required:

Differentiate between profitability ratios and liquidity ratios and give TWO examples each.

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  • 20 Marks

CR – May 2015 – L3 – Q3 – Emerging Trends in Corporate Reporting

Analyze financial statements of two companies and discuss limitations of ratio analysis.

Real Expansion Plc is a large group that seeks to grow by acquisition. The directors have identified two potential entities and obtained copies of their financial statements. The accountant of the company computed key ratios to evaluate the performance of these companies relating to:

  • Profitability and returns;
  • Efficiency in the use of assets;
  • Corporate leverage; and
  • Investor-based decisions.

The computation generated hot arguments among the directors, and they decided to engage a Consultant to provide expert advice on which company to acquire.

Extracts from these financial statements are given below:

Required:

(a) As the Consultant to the company, carry out a financial analysis on the financial statements and advise the company appropriately. (15 Marks)

(b) State the major limitations of ratio analysis for performance evaluation. (5 Marks)

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  • 15 Marks

FM – Nov 2016 – L3 – SC – Q6 – Strategic Performance Measurement

Evaluate Osamco Limited’s financial performance compared to industry benchmarks and discuss reasons for considering stock exchange listing.

Osamco Limited, manufacturer of wire and cables, was bought from its conglomerate parent company in a management buyout deal in August 2010. Six years later, the managers are considering the possibility of listing the company’s shares on the Nigerian Stock Exchange.

The following information is made available:

OSAMCO LIMITED
INCOME STATEMENT FOR THE YEAR ENDED JUNE 30, 2016

N’million Amount
Turnover 91.25
Cost of sales (79.00)
Profit before interest and taxation 12.25
Interest (3.25)
Profit before taxation 9.00
Taxation (1.25)
Profit attributable to ordinary shareholders 7.75
Dividend (0.75)
Retained profit 7.00

STATEMENT OF FINANCIAL POSITION AS AT JUNE 30, 2016

N’million Amount
Non-current assets (at cost less accumulated depreciation)
Land and buildings 9.00
Plant and machinery 24.75
Total non-current assets 33.75
Current assets
Inventories 11.00
Accounts receivable 11.75
Cash at bank 2.50
Total current assets 25.25
Total assets 59.00
Equity
Ordinary shares of N1 each 6.75
Reserves 24.25
Total equity 31.00
Non-current liabilities
Accounts payable due after more than one year: 12% Debenture 2018 5.50
Current liabilities
Trade accounts payable 17.50
Bank overdraft 5.00
Total current liabilities 22.50
Total equity and liabilities 59.00

Industry sector ratios:

Metric Industry Average
Return before interest and tax on long-term capital employed 24%
Return after tax on equity 16%
Operating profit as percentage of sales 11%
Current ratio 1.6:1
Quick (acid test) ratio 1.0:1
Total debt: equity (gearing) 24%
Dividend cover 4.0
Interest cover 4.5

Required:
a. Evaluate the financial state and performance of Osamco Limited by comparing it with that of its industry sector. (10 Marks)

b. Discuss FOUR probable reasons why the management of Osamco Limited is considering Stock Exchange listing. (5 Marks)

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  • 20 Marks

FM – May 2017 – L3 – Q4 – Financing Decisions and Capital Markets

Analyze and propose the use of convertible bonds for funding a warehouse project.

You are a financial consultant to a major company based in Kano. The company plans to build a major warehouse in Abuja. You plan to convince the company’s manager to raise the needed funds through a convertible bond issue. Based on the company’s current bond rating of BBB, you have projected the following offer terms:

  • Maturity: 6 years
  • Annual Coupon: 1%
  • Conversion Ratio: 50 shares
  • Par Value per Bond: ₦1,000
  • Issue Price: 98% of par value
  • Current Stock Price: ₦16
  • Risk-free Rate: 0.5%
  • Coupon on Straight Bonds: 2% (trading at par)

The proposal suggests raising up to ₦20,000,000. However, with key financial ratios close to the boundaries of the rating category, offering the full amount could threaten the BBB rating.

Given an average business risk profile, the following rating guidelines apply:

Rating Category Minimum Interest Cover Default Spread
BBB 2.39 0.5%
BBB- 2.04 1.0%

Selected Financial Data about the Company:

  • Estimated EBIT: ₦2,200,000
  • Current Interest Expenses: ₦800,000

Required:

a.
i. Determine the value of the convertible bond offer. (5 Marks)
ii. Discuss why the convertible bond cannot generally be considered as “cheap debt” despite its low coupon, given its financing advantage quantified in economic terms. (3 Marks)

b.
i. Compute the company’s current interest coverage ratio. (1 Mark)
ii. How much money should be raised with the convertible bond issue (in thousands of naira) to avoid the threat of a rating downgrade, based on the quoted rating guidelines? (4 Marks)

c. Advise the company on the advantages of convertible bonds for companies on one hand and for investors on the other hand. (7 Marks)

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  • 20 Marks

CR – Nov 2014 – L3 – SB – Q3 – Presentation of Financial Statements (IAS 1)

Analyze Prochain Plc’s financial performance and calculate key ratios for loan covenants.

Prochain Plc

The Directors of Prochain Plc have pursued an aggressive policy of expansion in the last two years. They have developed several new products and market share has increased.

The financial statements for the year ended 31 December 2013, which will be presented to the Board of Directors at its next meeting, are being finalised. The financial statements at the year-end are presented below:

Statement of profit or loss and other comprehensive income for the year ended 31 December

The results of the company as well as certain key ratios that will form part of the covenants in respect of the loan facilities will be discussed at the Board of Directors meeting.

Notes:

  1. The movement on the revaluation reserve relates to property, plant, and equipment revalued in the year.
  2. The movement on other reserves relates to the gains on the investments available for sale.
  3. The bonds are repayable on 1 July 2015.

Required:

(a) Based on the results of Prochain Plc for the year ended 31 December 2013, calculate the key ratios for the loan.
(8 Marks)

(b) Prepare a report commenting on the financial performance for the year in relation to the key ratios for the loan.
(12 Marks)

(Total 20 Marks)

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  • 15 Marks

FM – Nov 2016 – L3 – Q6 – Strategic Performance Measurement

Evaluate Osamco Limited's financial performance and discuss reasons for its potential stock exchange listing.

Osamco Limited, a manufacturer of wire and cables, was bought from its conglomerate parent company in a management buyout deal in August 2010. Six years later, the managers are considering the possibility of listing the company’s shares on the Nigerian Stock Exchange.

The following financial information is made available:

OSAMCO LIMITED
Income Statement for the Year Ended June 30, 2016

Item Amount (N’million)
Turnover 91.25
Cost of sales (79.00)
Profit before interest and taxation 12.25
Interest (3.25)
Profit before taxation 9.00
Taxation (1.25)
Profit attributable to ordinary shareholders 7.75
Dividend (0.75)
Retained profit 7.00

Statement of Financial Position as at June 30, 2016

Average performance ratios for the industry sector in which Osamco Limited operates are as stated below:

Industry Sector Ratios

Ratio Industry Average
Return before interest and tax on long-term capital employed 24%
Return after tax on equity 16%
Operating profit as a percentage of sales 11%
Current ratio 1.6:1
Quick (acid test) ratio 1.0:1
Total debt: equity (gearing) 24%
Dividend cover 4.0
Interest cover 4.5

Required:

  1. (a) Evaluate the financial state and performance of Osamco Limited by comparing it with that of its industry sector. (10 Marks)
  2. (b) Discuss four probable reasons why the management of Osamco Limited is considering Stock Exchange listing. (5 Marks)

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  • 12 Marks

CR – Nov 2021 – L3 – Q2b – Earnings Per Share (IAS 33)

Calculate basic and diluted earnings per share (EPS) from Nsukka Plc’s consolidated financial statements.

b. The following financial information relates to Nsukka Group for the year ended June 30, 2021.

Nsukka Group Consolidated Statement of Financial Position as at June 30, 2021

Additional Information:

  1. Nsukka PLC reports a profit after tax, after adjusting for all current year accounting issues, of N1,850,000 and an effective tax rate of 20%.
  2. For the first time, Nsukka PLC issued 1,000,000 ordinary shares and granted options for 400,000 shares on July 1, 2020. The exercise price was the market price of N1.50 per share at the grant date. Options vest on July 1, 2020, and expire on June 30, 2022. The average market price of shares in Nsukka Plc during the year ended June 30, 2022, was N1.834.
  3. A rights issue of 1 for every 20 shares was made on May 31, 2021, at a price of N1.30 per share. The market price at this date was N1.60, and the average price for the year to June 30, 2021, was N1.65.
  4. Nsukka PLC has N1,000,000 of 6% convertible loans included in other non-current liabilities. These were in issue throughout the year and may be converted into 100,000 ordinary shares. No loans were converted during the year. There are no dividends in arrears on the 3% preference shares.

Required:

Evaluate basic and diluted earnings per share from the consolidated statement of financial position as at June 30, 2021, for Nsukka Plc.
(12 Marks)

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  • 20 Marks

CR – May 2018 – L3 – SB – Q2 – Associates and Joint Ventures (IAS 28

Calculate and interpret key financial ratios for Wole-Adura Group and evaluate liquidity.

Set out below are the draft accounts of Wole-Adura Plc and subsidiaries and of Maseru Associates. Wole-Adura acquired 40% of the equity capital of Maseru Associates three years ago when the latter’s retained earnings stood at N140m.

Abridged statement of financial position

Wole-Adura Plc & Subsidiaries Maseru Associates
Property, plant, and equipment 990 Nm
Investment in Maseru Associates at cost 290 Nm
Loan to Maseru Associates 70 Nm
Current assets 450 Nm
Loan from Wole-Adura Plc. –
Total Assets 1800 Nm

FINANCED BY:

| Ordinary shares of 50k each | 1,125 Nm | 350 Nm | | Retained earnings | 675 Nm | 350 Nm | | Total Equity | 1800 Nm | 700 Nm |

Abridged statements of profit or loss

Wole-Adura Plc & Subsidiaries Maseru Associates
Profit before tax 427.50 Nm
Tax expense (157.50 Nm)
Profit after tax 270.00 Nm

Additional information:

(i) Wole-Adura proposed a dividend of N225m.
(ii) Total market capitalisation is N5,625m.

Required:

(a) Calculate each of these ratios for Wole-Adura Plc. and subsidiaries:

  1. Earnings per share
  2. Dividend cover
  3. Earnings yield
  4. Dividend yield

(4 Marks)

(b)

  1. Using the equity method, compute the earnings of the group incorporating the associates. (4 Marks)
  2. Compute the ratios in (a) above for the group. (4 Marks)

(c) Comment on the ratios calculated in (a) and (b) above by pairwise comparison. (3 Marks)

(d) Extracts from the financial statements of Ikoku Plc. recently published are as follows:

Statement of profit or loss for the year ended December 31, 2017

2017 2016
Revenue 360 Nm
Cost of sales (150 Nm)
Gross profit 210 Nm
Operating expenses (50 Nm)
Operating profit 160 Nm
Interest expense (10 Nm)
Tax expense (60 Nm)
Profit for the year 90 Nm

Statement of financial position as at December 31, 2017

2017 2016
Non-current assets
Property, plant & equipment 80 Nm
Current assets
Inventory 200 Nm
Trade receivables 70 Nm
Bank (50 Nm)
Total assets 300 Nm

Equity & liabilities

| Ordinary shares of N1 each | 60 Nm | 40 Nm | | Current liabilities | | | Trade payables | 190 Nm | 60 Nm | | Current tax | 50 Nm | 15 Nm | | Total liabilities and equity | 300 Nm | 115 Nm |

Required:

Discuss the liquidity challenges of Ikoku Plc. during the year ended December 31, 2017, from the extracts of the published financial statements. (5 Marks)

(Total 20 Marks)

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  • 20 Marks

CR – Nov 2018 – L3 – SB – Q3 – Business Combinations (IFRS 3)

Evaluation of Abana and Doha as potential acquisition targets using adjusted financial ratios.

Banny Plc. (Banny) is a diversified company that has achieved its present size through vertical and horizontal acquisition. The directors have identified two potential target entities for acquisition. The first is Abana Limited (Abana), which operates a cement business near Offa, Kwara State. The second is Doha Limited (Doha), also in the cement industry, located near Oturukpo, Benue State. Banny has obtained copies of their audited financial statements, along with additional information notes.

Statement of Profit or Loss for the Year Ended December 31, 2017

Item Abana (₦’m) Doha (₦’m)
Revenue 136,000 132,000
Cost of sales (84,000) (91,900)
Gross profit 52,000 40,100
Other operating expenses (36,000) (28,000)
Profit from operations 16,000 12,100
Finance costs (6,000) (8,000)
Profit before tax 10,000 4,100
Income tax expense (3,000) (2,000)
Net profit for the period 7,000 2,100

Statement of changes in equity for the year ended December 31, 2017

Statement of financial position as at December 31, 2017

Additional Notes:

  1. Doha revalued its non-current assets for the first time following IFRS adoption on January 1, 2017. Abana maintains its non-current assets at historical cost.
  2. Banny uses the following ratios to evaluate acquisition targets: Return on Capital Employed (ROCE), Gross Profit Margin, Turnover on Capital Employed, and Leverage.

Required:

a. Compute adjustments for the revaluation of property, plant, and equipment, making Abana and Doha comparable for analysis. (14 Marks)

b. Calculate the four ratios (ROCE, Gross Profit Margin, Turnover on Capital Employed, and Leverage) after adjustments. (4 Marks)

c. Advise Banny on the better acquisition target based on adjusted ratios. (2 Marks)

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  • 20 Marks

CR – Nov 2023 – L3 – SB – Q2 – Consolidated Financial Statements (IFRS 10)

Analyze the profitability, cash flow, and investor ratios of Mama-Kitchen PLC and discuss dividend policy and EPS limitations.

Mama-Kitchen PLC owns a number of subsidiaries that operate standard fast-food eateries in all the six geopolitical zones of the country. You are the financial analyst of your Bank (Pam-Pam Bank Nigeria Limited) which owns 10% of the issued share capital of Mama-Kitchen PLC.

You are provided with the following financial and background information on Mama-Kitchen PLC.

Mama-Kitchen PLC

Consolidated statement of profit or loss for the year ended September 30

2023 2022
Revenue 188,900 145,850
Cost of sales (141,700) (110,400)
Gross profit 47,200 35,450
Admin expenses (31,200) (22,400)
Profit from operations 16,000 13,050
Finance cost (2,050) (2,100)
Profit before taxation 13,950 10,950
Income tax expense (3,050) (2,300)
Profit for the year 10,900 8,650
Earnings per share – basic 26.8k 21.3k
Earnings per share – diluted 21.2k 19.2k

Mama-Kitchen PLC

Consolidated statement of cash flows for the year ended September 30

2023 2022
Cash flows from operating activities:
Profit before taxation 13,950 10,950
Finance cost 2,050 2,100
Depreciation and amortisation 15,300 11,050
Loss on disposal of PPE 150 50
(Increase)/decrease in inventories (200) 50
Increase/decrease in receivables (1,250) (100)
Increase in trade payables 2,250 650
Total 32,250 24,750
Interest paid (2,050) (2,200)
Tax paid (1,600) (1,300)
Net cash flows from operating activities 28,600 21,250
Cash flows from investing activities:
Purchase of PPE (29,850) (28,950)
Proceed from sale of PPE 100 150
Net cash used in investing activities (29,750) (28,800)
Cash flows from financing activities:
Proceeds from issues of shares 1,200 100
Borrowings 3,250 10,000
Net cash flow from financing activities 4,450 10,100
Net increase in cash and cash equivalents 3,300 2,550
Cash and cash equivalents at beginning 12,400 9,850
Cash and cash equivalents at year end 15,700 12,400

Details of revenue, fast food outlets profits, and new fast food outlets openings for the year ended September 30

2023 2022
Revenue per fast food outlets:
At September 30 1,770 1,715
Opened in the current financial year 1,290 –
Gross profit per outlet opened
At September 30 435 415
In the current financial year 345

Note:

  • 30 new outlets were opened during the year ended September 30, 2023, bringing the total to 115 fast food outlets.

Additional financial information

2023 2022
Gross profit margin 25% 24.3%
Debt equity ratio 35.2% 44.4%
Current ratio 0.56:1 0.48:1
Trade payables payment period 86 days 103 days
Return on capital employed 20% 19.1%
Cash return on capital employed 40.2% 36.3%
Earnings before Interest, tax, depreciation and amortisation (N‟m) 31,300 24,100
Non-current assets turnover 1.68 times 1.49 times
Share price (at September 30) 302k 290k

Background information

i. Mama-Kitchen PLC has a reputation of depreciating its assets more slowly than others in the industry.

ii. The strategy of the group is to fund new fast food outlets capital expenditure from existing operating cash flows without needing to raise new borrowings.

iii. Revenue growth in the industry is estimated at 4.1% per annum.

iv. It is the company’s policy to increase promotional and advertising spending on new outlets to encourage strong initial sales.

v. The board has accused the management of concentrating on new outlet openings to the detriment of existing outlets.

vi. One of your colleagues, a financial analyst, stated that the company has not been able to pay dividends because of the debit balance on its consolidated retained earnings.

Required:

a. Draft a report addressed to the Managing Director of Pam-Pam Bank Limited analyzing the profitability, cash flows, and investor ratios of Mama-Kitchen PLC. You should also identify and justify matters that you consider will require further investigations.
(13 Marks)

b. Explain the validity or otherwise of your colleague financial analyst’s statement that Mama-Kitchen PLC was unable to pay dividends because of the debit balance on consolidated retained earnings.
(4 Marks)

c. Explain the usefulness and limitations of diluted earnings per share information to investors.
(3 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Calculate key financial ratios and evaluate the company's performance for shareholder and lender insight.

A-Z is considering raising external finance through offering its shares for sale or obtaining a term loan from the bank. The company’s financial statements for the year ended November 30, 2021, have been subjected to financial analysis as follows:

Statement of Comprehensive Income for Year Ended November 30:

2021 (N’000) 2020 (N’000)
Profit before interest and tax 6,600 4,710
Interest expense (510) (450)
Profit before tax 6,090 4,260
Income tax expense (2,190) (1,560)
Profit after tax 3,900 2,700
Dividends paid (750) (750)
Retained profit 3,150 1,950

Statement of Financial Position as at November 30:

2021 (N’000) 2020 (N’000)
Non-current assets 19,050 16,800
Current assets:
Trade receivables 6,300 6,210
Inventories 5,130 4,620
Total current assets 11,430 10,830
Total assets 30,480 27,630
Equity and liabilities
Equity:
Share capital (ordinary shares of N1 fully paid up) 9,000 9,000
Retained earnings 11,100 7,950
Total Equity 20,100 16,950
Non-current liabilities:
10% Loan notes 2022/2023 4,500 4,500
Current liabilities:
Trade payables 3,120 3,390
Taxation 1,650 1,350
Bank overdraft 1,110 1,440
Total Equity and Liabilities 30,480 27,630

Required:
a. Compute the following ratios for the years 2020 and 2021:

  1. Return on equity
  2. Dividend cover
  3. Dividend pay-out ratio
  4. Interest cover
    (8 Marks)

b. Based on the ratios computed above, prepare a report on the performance and state of the company, assuming potential shareholders and lenders are the recipients of your report.
(12 Marks)
(Total 20 Marks)

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  • 20 Marks

FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

Ozoigbondu Nigeria Limited is a company that is into buying and selling of plastic containers. The company is financed by a capital of ₦15 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively.

The Company has been in trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.

The company’s policy on sales is to ensure that sales are collected as follows: (i) Cash sales is 40% of the monthly sales. (ii) The balance of the month’s sales is to be collected in the month following sales.

The policy on purchases is in agreement with the supplier’s policy which is to pay for all supplies in the month following. The company’s stock policy is to reserve 30% of the month’s purchases as closing inventory.

The following information is available for the five years 2010 to 2014:

2010 2011 2012 2013 2014
Monthly Sales 3,400,000 3,600,000 4,200,000 4,800,000 7,200,000
Monthly Purchases 2,000,000 2,400,000 2,800,000 3,200,000 4,800,000
Monthly Salaries 350,000 350,000 430,000 430,000 480,000
Monthly Rent 100,000 100,000 100,000 100,000 100,000
Monthly Cash Expenses 200,000 220,000 240,000 280,000 360,000

Additional Information: (i) The company purchased a motor vehicle in July 2013 which was paid for in September 2013. The cost of the motor vehicle was ₦5,000,000.
(ii) Annual depreciation for the motor vehicle is 20%.
(iii) The Cash Balance as at 31st December 2011 was ₦4,000,000.
(iv) The company’s salaries, rent, and expenses were paid in the month they were due.

Required: a. Prepare a Profitability Statement for 2012, 2013, and 2014. (10 Marks)
b. Prepare a Cash Flow Statement for 2012, 2013, and 2014. (7 Marks)
c. Determine and comment on the liquidity ratio (current ratio) for 2014. (2 Marks)
d. Compute the gearing ratio. (1 Mark)

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  • 20 Marks

CR – Nov 2017 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Analyze Odua Plc’s financial performance using ratios under profitability, efficiency, liquidity, solvency, and market performance.

The summarized comparative financial statements of Odua Plc. for the years ended December 31, 2016, and 2015 are as follows:

Statement of Profit or Loss and Other Comprehensive Income for the Year Ended December 31

2016 (N’m) 2015 (N’m)
Revenue 550 400
Cost of Sales (400) (200)
Gross Profit 150 200
Operating Costs (72) (60)
Operating Profit 78 140
Investment Income – –
(Loss)/Gain on Revaluation of Investments (10) 20
Finance Costs (10) (6)
Profit Before Taxation 58 154
Income Tax Expense (8) (30)
Profit for the Year 50 124
Other Comprehensive Income
Revaluation Losses on PPE (90) –
Total Comprehensive Income for the Year (40) 124

Statement of Financial Position as of December 31

2016 (N’m) 2015 (N’m)
Assets
Non-Current Assets
Property, Plant, and Equipment 430 490
Investments (Fair Value) 70 80
Total Non-Current Assets 500 570
Current Assets
Inventory 80 38
Trade Receivables 104 56
Bank – 20
Total Current Assets 184 114
Total Assets 684 684
Equity and Liabilities
Equity
Equity Shares of N0.50 Each 240 240
Revaluation Reserve 20 110
Retained Earnings 180 130
Total Equity 440 480
Non-Current Liabilities
Bank Loan 100 100
Current Liabilities
Trade Payables 100 78
Bank Overdraft 40 –
Current Tax Payable 4 26
Total Current Liabilities 144 104
Total Equity and Liabilities 684 684

Additional Information:

  1. The Managing Director asserts that Odua Plc has retained book value and has not deteriorated, appraising the company’s new strategy.
  2. In recent years, Odua Plc has faced difficulties maintaining sales due to a shift to online shopping. In response, Odua launched a price-cutting strategy on January 1, 2016.
  3. Odua installed a new product movement and control system on January 1, 2016, costing N40 million and depreciated over five years, replacing an older system disposed of at zero consideration.
  4. The share price declined from N2.80 per share on December 31, 2015, to N1.60 per share on December 31, 2016.

Required:
Evaluate and interpret the following ratios under the headings of profitability, efficiency, short-term liquidity, long-term solvency and stability, and stock market performance for each financial year:

  • Profitability Ratios: Gross Margin, Net Margin, ROCE, ROE
  • Efficiency Ratios: Inventory Days, Receivables Days, Payables Days
  • Liquidity Ratios: Current Ratio, Acid Test Ratio
  • Solvency Ratios: Interest Cover, Gearing
  • Market Ratios: Earnings Per Share, Price Earnings Ratio

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  • 30 Marks

FR – Nov 2022 – L2 – Q1 – Financial Performance Ratios

This question asks for the computation of key financial ratios and an analysis of the viability of acquiring controlling interests in two companies.

There has been agitation to stop importation of containers from China, to increase patronage of local industries. The Board of Favour PLC is planning to acquire 75% controlling interests in either Grace Limited or Blessing Limited which produce better and cheaper containers locally. As a trainee working in
Obokun Chartered Accountants, the Managing Partner has requested you to carry out performance score cards of the companies using accounting ratios to assess the viability of the acquisition.

Statement of comprehensive income for the year ended December 31, 2020:



Additional Information:
(i) Inventories as at December 31, 2019 were N60 million, N30 million and N50 Million and the current market prices, 30 kobo, 28 kobo and 10 kobo
for Favour Plc, Grace Limited and Blessing Limited respectively.
(ii) Purchases for cash within 365 days in the year 2020 were 10%, 20% and 40% of cost of sales for Favour Plc, Grace Limited and Blessing Limited
respectively.
Required:
a. Calculate the following ratios for Grace Limited and Blessing Limited.
i. Net profit margin
ii. Quick ratio
iii. Debt equity ratio
iv. Proprietary ratio
v. Earnings yield
vi. Net asset per share

b. Draft a technical report titled “Performance Scorecard‟ of Blessing Limited and Grace Limited and advise Favour Plc in which of the two companies it should acquire 75% controlling interests. (10 Marks)

c. The Chief Financial Officer (CFO) of Favour Plc noted that the records of Blessing Limited and Grace Limited are maintained using block chain technologies.

Required: Discuss the type of records that a company can maintain in blockchain and state TWO benefits of making use of this technology. (10 Marks)

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  • 30 Marks

AA – May 2017 – L2 – SA – Q1 – Audit Evidence

Analysis and identification of unusual features in Abricon Nigeria Ltd.'s profit and loss for audit purposes.

The following is the statement of Profit or Loss and other comprehensive income of ABRICON NIGERIA LIMITED for the year ended December 31, 2016.

ABRICON NIGERIA LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2016

Requirements:

(a) Perform analytical tests on the figures given. (16 Marks)

(b) Identify unusual features. (8 Marks)

(c) Provide possible explanations why some apparently unusual items were not selected in (b) above. (6 Marks)

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  • 15 Marks

FR – Nov 2014 – L2 – Q2b – Consolidated Financial Statements (IFRS 10)

Compute performance and investment ratios to evaluate financial performance.

You are provided with the following set of amended published Financial Statements of HAMMED Plc for the year ended 31 December 2013:

Capital and Reserves Attributable to
equity shareholders:

Additional information:

  1. The issued share capital of the company consists of 50k ordinary shares.
  2. The market price of the ordinary shares was N17 at 31 December 2012 and N19.16 at 31 December 2013.
  3. There were no preference shares and no loan notes.
  4. The cost of purchases plus production cost was N124,966,000 in 2012 and N125,000,000 in 2013.
  5. Other opening and closing balances:
Description Closing 2013 (N’000) Closing 2012 (N’000) Opening 2012 (N’000)
PPE accumulated depreciation 37,046 129,540 122,288
Inventories 16,548 18,344 20,836
Trade receivables 40,486 37,160 35,678
Trade payables 9,604 12,882 11,412
Other taxes and social security 3,822 3,640 3,818
Accruals 30,740 27,810 27,680
Equity 129,888 121,364 106,274

Required:

i. Calculate performance (efficiency) and investment ratios for each of the two years as far as the available information permits. (10 Marks)

ii. Comment on the company’s financial performance for the year ended 31 December 2013 based on the ratios. (5 Marks)

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  • 5 Marks

FR – Nov 2014 – L2 – Q2a – Regulatory Framework for Financial Reporting

Explain limitations of accounting ratios in financial statement interpretation for a non-accounting executive.

A non-accountant friend of yours attended a seminar for non-accounting executives on the interpretation of financial statements.

Though he enjoyed the seminar, especially the aspect on the uses of accounting ratios, he strongly believes that they have their limitations.

Required: State and explain the limitations of ratios for the purpose of interpreting financial statements. (5 Marks)

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  • 20 Marks

FR – May 2024 – L2 – SB – Q3 – Regulatory Framework for Financial Reporting

Calculation of financial ratios and analysis of Lamido Ltd’s financial performance and position for the year ended December 31, 2022.

Lamido Limited is a courier service company that operates in Nigeria and West Africa.

Initially, Lamido Limited experienced strong growth, but in recent periods the company has been criticised for under-investing in its non-current assets.

Lamido Limited statement of financial position as at December 31:

The following information is also relevant:

  1. Lamido Limited had exactly the same delivery volumes in 2022 as in 2021, with the customer base being the same in both years.
  2. In October 2022, Lamido Limited had to renegotiate its operating licenses in three of its countries of operation. This led to an increase in the fees Lamido Limited had to pay to operate in these countries. The operating licenses in five other countries are due to expire in December 2022, and Lamido Limited is currently negotiating with the concerned authorities of these countries.

You are required to:
a. Calculate the following ratios for the years ended December 31, 2021, and 2022:
i. Operating profit margin
ii. Return on capital employed
iii. Net asset turnover
iv. Current ratio
v. Interest cover
vi. Gearing (Debt/equity)
(6 Marks)

b. Comment on the performance and position of Lamido Limited for the year ended December 31, 2022, and highlight any issues Lamido Limited should consider in the near future. (14 Marks)

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  • 20 Marks

FR – Nov 2015 – L2 – Q3 – Presentation of Financial Statements (IAS 1)

Calculation of accounting ratios for creditors, management, and shareholders with comparisons between 2013 and 2014.

The summarized final accounts of Omosigho Ltd, manufacturer of Aluminum roofing sheets and its accessories, for two years ended December 31, 2013, and 2014 were as follows:

Required:
a. Calculate TWO accounting ratios each that will be of interest to the following stakeholders:
i. Creditors
ii. Management
iii. Shareholders
(15 Marks)

b. Comment briefly on the changes between the ratios arrived at in 2013 and 2014.
(5 Marks)

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  • 20 Marks

PSAF – May 2022 – L2 – SA – Q4 – Government Revenue

Compute financial ratios for Koki Event Center and highlight ways to conduct analytical reviews.

The following information relates to Koki Event Center which is owned and managed by Ogbonge Local Government.

Koki Event Centre
Statement of financial position as at September 30, 2021 (Extract)

Required:
a. Compute the following relevant ratios for the event centre and comment on your results:
i. Current ratio (3 Marks)
ii. Acid test ratio (3 Marks)
iii. Working capital/Total assets ratio (3 Marks)
iv. Total debts/Total assets ratio (3 Marks)
v. Long-term debts/Total assets ratio (3 Marks)

b. Highlight THREE ways by which analytical review can be conducted. (3 Marks)

c. Explain TWO ways the performance appraisal of a profit-oriented entity would differ from that of a public-oriented entity. (2 Marks)

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