Question Tag: Performance Comparison

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  • 3 Marks

CR – May 2018 – L3 – Q4b – Presentation of financial statements

Explain three problems that arise when using ratios to compare the performance of two companies.

Fordland Ltd and Fiatland Ltd are two companies in the garment industry. The following are financial ratios computed by the Research Department of ICAG as part of analyzing companies’ performance industry by industry.

Required:
Explain THREE problems that are inherent when ratios are used to compare the performance of two companies, even in the same industry.

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  • 20 Marks

FA – May 2016 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios for BB’s business and analyze its performance compared to a competitor.

BB is the owner of a business supplying goods to other traders. He has just received the financial accounts for his business for the year ended 31st December 2014 from his accountant. These are reproduced below.

Income Statement for the year ended 31st December 2014

Description GH¢
Sales 400,000
Cost of sales (300,000)
Gross Profit 100,000
Expenses (70,000)
Net Profit 30,000

Statement of Financial Position as at 31st December 2014

Note: Inventory on 1st January 2014 was valued at GH¢48,000.
BB has also obtained comparative information about a competitor for the year ended 31st December 2014.

Description Competitor
Net profit margin 6%
Return on capital employed 10.50%
Current ratio 4.2:1
Liquid (acid test) ratio 0.3:1
Rate of inventory turnover 4 times

Required:
a) Calculate for BB each of the following ratios for the year ended 31st December 2014 (where appropriate, calculations should be approximated to two decimal places):
i) Net profit margin. (2 marks)
ii) Return on capital employed (using the closing year end value for capital employed). (2 marks)
iii) Current ratio. (2 marks)
iv) Liquid (acid test) ratio. (2 marks)
v) Rate of inventory turnover. (2 marks)

b) Based on the ratios calculated in part (a) and all other information provided, demonstrate the performance (profitability and liquidity) of BB’s business. (10 marks)

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  • 3 Marks

CR – May 2018 – L3 – Q4b – Presentation of financial statements

Explain three problems that arise when using ratios to compare the performance of two companies.

Fordland Ltd and Fiatland Ltd are two companies in the garment industry. The following are financial ratios computed by the Research Department of ICAG as part of analyzing companies’ performance industry by industry.

Required:
Explain THREE problems that are inherent when ratios are used to compare the performance of two companies, even in the same industry.

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You're reporting an error for "CR – May 2018 – L3 – Q4b – Presentation of financial statements"

  • 20 Marks

FA – May 2016 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios for BB’s business and analyze its performance compared to a competitor.

BB is the owner of a business supplying goods to other traders. He has just received the financial accounts for his business for the year ended 31st December 2014 from his accountant. These are reproduced below.

Income Statement for the year ended 31st December 2014

Description GH¢
Sales 400,000
Cost of sales (300,000)
Gross Profit 100,000
Expenses (70,000)
Net Profit 30,000

Statement of Financial Position as at 31st December 2014

Note: Inventory on 1st January 2014 was valued at GH¢48,000.
BB has also obtained comparative information about a competitor for the year ended 31st December 2014.

Description Competitor
Net profit margin 6%
Return on capital employed 10.50%
Current ratio 4.2:1
Liquid (acid test) ratio 0.3:1
Rate of inventory turnover 4 times

Required:
a) Calculate for BB each of the following ratios for the year ended 31st December 2014 (where appropriate, calculations should be approximated to two decimal places):
i) Net profit margin. (2 marks)
ii) Return on capital employed (using the closing year end value for capital employed). (2 marks)
iii) Current ratio. (2 marks)
iv) Liquid (acid test) ratio. (2 marks)
v) Rate of inventory turnover. (2 marks)

b) Based on the ratios calculated in part (a) and all other information provided, demonstrate the performance (profitability and liquidity) of BB’s business. (10 marks)

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