- 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.
Question
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:
- The Managing Director asserts that Odua Plc has retained book value and has not deteriorated, appraising the company’s new strategy.
- 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.
- 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.
- 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
Find Related Questions by Tags, levels, etc.
- Tags: Financial Ratios, Liquidity, Market Performance, Profitability, Solvency
- Level: Level 1
- Topic: Presentation of Financial Statements (IAS 1)
- Series: NOV 2017
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