SMM – APR 2023 – L4 – Q1 – 5-Year Marketing Plan Amid High Rates
Develop a comprehensive 5-year marketing plan for a Ghanaian bank to increase assets and maximize profitability in the face of a 28% monetary policy rate and high interbank dollar rate of GHS10.7.
The current Bank of Ghana monetary policy rate is 28% and the average interbank dollar rate of GHS10.7 is considered very high. These have implications for Ghanaian banks’ lending to their customers. In view of these challenges, you have been appointed the new Head of Business Development and your Managing Director has asked you to prepare a 5-year marketing plan to increase your assets portfolio and maximize your profitability. (40 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.
Nsawkaw PLC (NK), a gold processing and trading company, has been identified by Djaraye Private Equity Fund (DPEF) as a target for long-term equity investment. As a financial consultant of DPEF, you have been tasked to evaluate the integrated financial condition of NK and make an investment recommendation.
Below are the summarised versions of NK’s Consolidated Financial Statements for the year ended June 30, 2024 (together with its comparative period):
Summarised Consolidated Statement of Profit or Loss for the year ended 30 June 2024
2024 (GH¢000)
2023 (GH¢000)
Revenue
2,538,000
2,125,000
Operational expenses
(1,909,100)
(1,592,900)
Interest costs
(186,700)
(157,250)
Taxation
(234,000)
(198,500)
Profit after tax
208,200
176,350
Other comprehensive income
17,900
10,550
Total comprehensive income
226,100
186,900
Summarised Consolidated Statement of Changes in Equity for the year ended 30 June 2024
Equity Holders of the Parent (GH¢000)
Non-controlling Interests’ Equity (GH¢000)
Total Equity (GH¢000)
2024
Balances b/d
457,200
65,600
522,800
Total comprehensive income
190,800
35,300
226,100
Dividends
(110,000)
(8,700)
(118,700)
Balances c/d
538,000
92,200
630,200
2023
Balances b/d
355,000
46,650
401,650
Total comprehensive income
160,500
26,400
186,900
Dividends
(58,300)
(7,450)
(65,750)
Balances c/d
457,200
65,600
522,800
Summarised Statement of Financial Position as at 30 June 2024
2024 (GH¢000)
2023 (GH¢000)
Non-current assets
Property, plant, and equipment
718,000
657,000
Others
156,000
99,000
Total Non-current assets
874,000
756,000
Current assets
Trade receivables
140,000
121,000
Others
236,500
123,050
Total Current assets
376,500
244,050
Total Assets
1,250,500
1,000,050
Total Equity and Liability
1,250,500
1,000,050
Additional information:
The total number of equity shares outstanding was 1.2 million and 1.4 million at 30 June 2023 and 30 June 2024 respectively.
Other comprehensive income attributable to non-controlling interests for the years ended 30 June 2023 and 2024 amounted to GH¢8.05 million and GH¢9.6 million respectively.
Non-current liabilities at 30 June 2023 and 30 June 2024 amounted to GH¢250,800 and GH¢308,510 respectively.
The following metrics have been gleaned from NK’s published sustainability reports across the two years:
Metric
2024
2023
Scope 1 & 2 carbon emissions (tonnes of CO2)
650
780
Scope 3 carbon emissions (tonnes of CO2)
2,400
2,380
Women in senior management (%)
21
16
Total recordable injury frequency rate (TRIFR) per 100 full-time workers
3.3
4.1
The scope and definitions of the above sustainability measures have remained materially unchanged across the two years.
Required:
Compute the following ratios for the years ended 2024 & 2023:
Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, both operating in the same industry.
The financial statements of Suah LTD and Nagbe LTD for the year ended 30 September 2024 have been provided, along with a set of financial ratios calculated for Suah LTD.
Required: Using the calculated ratios for Nagbe LTD from Question 4a, assess the relative financial performance and financial position of Suah LTD and Nagbe LTD, to assist the directors of Dukuly LTD in making an acquisition decision.
Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, which operate in the same industry. The indicative price for acquiring either entity is GH¢12 million.
The financial statements for Suah LTD and Nagbe LTD are provided as follows:
Statement of Profit or Loss for the year ended 30 September 2024
Item
Suah LTD (GH¢’000)
Nagbe LTD (GH¢’000)
Revenue
25,000
40,000
Cost of Sales
(19,000)
(32,800)
Gross Profit
6,000
7,200
Distribution & Admin Expenses
(1,250)
(2,300)
Finance Costs
(250)
(900)
Profit Before Tax
4,500
4,000
Income Tax Expense
(900)
(1,000)
Profit for the Year
3,600
3,000
Statement of Financial Position as at 30 September 2024
Item
Suah LTD (GH¢’000)
Nagbe LTD (GH¢’000)
Non-Current Assets
4,800
10,300
Current Assets
4,800
8,700
Total Assets
9,600
19,000
Equity
2,600
5,600
Non-Current Liabilities
5,000
9,200
Current Liabilities
2,000
4,200
Total Equity & Liabilities
9,600
19,000
Additional Information:
Carrying Amount of Plant Assets:
Suah LTD: GH¢4,800,000
Nagbe LTD: GH¢2,000,000
The following ratios for Suah LTD are provided:
Ratio
Suah LTD
Return on Capital Employed (ROCE)
62.5%
Net Asset Turnover
3.3 times
Gross Profit Margin
24.0%
Profit Margin (Before Interest & Tax)
19.0%
Current Ratio
2.4:1
Inventory Holding Period
31 days
Trade Receivables Collection Period
31 days
Trade Payables Payment Period
24 days
Gearing Ratio
65.80%
Acid Test Ratio
1.6:1
Required: Using the financial statements provided, calculate the corresponding ratios for Nagbe LTD to compare with Suah LTD.
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)
Ehis Marvel, a public company, is a high street retailer that sells clothing and food. The managing director is very disappointed with the current year’s result. The company expanded its operations and commissioned a famous designer to restyle its clothing products. This has led to increased sales in both retail lines, yet overall profits are down.
Extract from the Income Statement for the two years to March 31, 2016, are shown:
Ehis Marvel Plc – Statement of cash flow for the year to March 31, 2016
(ii) The share price of Ehis Marvel Plc averaged N6.00 during the year to March 31, 2015, but was only N3.00 at March 31, 2016.
Required:
Write a report analysing the financials of Ehis Marvel Plc, utilising the above ratios and the information in the statement of cash flows for the two years ended March 31, 2016. Your report should refer to the relative performance of the clothing and food sales and be supported by any further ratios you consider appropriate.
You're reporting an error for "CR – May 2016 – L3 – Q2 – Introduction to Corporate Reporting"
20 Marks
CR – May 2019 – L3 – Q2 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
Assess the accounting treatment of a policy change and analyze the profitability, liquidity, and efficiency ratios of the company based on the financial statements.
Below is the draft financial statement of Lanwani Plc., a manufacturer of fast-moving consumer goods.
Statement of financial position as at
Statement of profit or loss
Additional Information:
The company changed its accounting policy from the cost model to the revaluation model for its property. The revaluation reserve represents the revaluation surplus recognized in 2017. No adjustment was made for 2016.
Development costs of ₦45 billion were capitalized during 2017. The related asset is not expected to generate economic benefits until 2020.
Required:
a. Assess the accounting treatment of the change in accounting policy and state the impact on the return on capital employed (ROCE). (3 Marks)
b. Analyze the profitability, liquidity, and efficiency of Lanwani Plc. (15 Marks)
c. Briefly discuss TWO limitations of the analysis done in (b) above. (2 Marks)
The following information has been extracted from the recently published accounts of Diamond Ltd and Shine Ltd.
Statement of Profit or Loss for the year ended 31 December 2016
The following are the latest industry average ratios: Required:
Calculate comparable ratios (to two decimal places where appropriate) for the two companies. All calculations must be clearly shown.
You are a private consultant for Ashtown Ltd, a listed company in Ghana operating in the manufacturing sector. Below is a Statement of Financial Position and a summarized statement of changes in equity with comparatives for the year ended 31 December 2015.
Statement of Financial Position as at 31 December 2015:
Required: Prepare a report and address it to the Chief Executive Officer, analyzing the financial performance and financial position of Ashtown Ltd based on the industry ratios above for the years 2014 and 2015.
Obiya Ltd assembles computer equipment from bought-in components and distributes them to various wholesalers and retailers. It has recently subscribed to an inter-firm comparison service. Members submit accounting ratios as specified by the operator of the service, and in return, members receive the average figures for each of the specified ratios taken from all of the companies in the same sector that subscribe to the service. The specified ratios and the average figures for Obiya’s sector are shown below:
Ratios of sector companies for the period to 30 September 2017
Ratio
Sector Average
Return on capital employed
22.1%
Net asset turnover
1.8 times
Gross profit margin
30%
Net profit (before tax) margin
12.50%
Current ratio
1.6:1
Quick ratio
0.9:1
Inventory holding period
46 days
Accounts receivable collection period
45 days
Accounts payable payment period
55 days
Debt to equity
40%
Dividend yield
6%
Dividend cover
3 times
Obiya Ltd’s financial statements for the year to 30 September 2017 are set out below:
Statement of profit or loss for the year ended 30 September 2017
Description
GH¢’000
Revenue
2,425
Cost of sales
(1,870)
Gross profit
555
Other operating expenses
(215)
Operating profit
340
Finance costs
(34)
Exceptional item (note ii)
(120)
Profit before tax
186
Income tax
(90)
Profit for the period
96
Statement of changes in equity (extract)
For the year ended 30 September 2017
Description
GH¢’000
Retained earnings – 1 October 2016
179
Net profit for the period
96
Dividends paid (Interim GH¢60,000; final GH¢30,000)
(90)
Retained earnings – 30 September 2017
185
Statement of financial position as at 30 September 2017
Description
GH¢’000
Non-current assets
Property, plant, equipment
540
Current assets
Inventory
275
Accounts receivable
320
Bank
–
Total current assets
595
Total assets
1,135
Equity
Ordinary shares (25 pesewas each)
150
Retained earnings
185
Total equity
335
Non-current liabilities
8% loan notes
300
Current liabilities
Bank overdraft
65
Trade accounts payable
350
Taxation
85
Total current liabilities
500
Total equity and liabilities
1,135
Notes:
i) The details of the non-current assets are:
Description
Cost (GH¢’000)
Accumulated depreciation (GH¢’000)
Net book value (GH¢’000)
At 30 September 2017
3,600
3,060
540
ii) The exceptional item relates to losses on the sale of a batch of computers that had become worthless due to improvements in microchip design.
iii) The market price of Obiya’s shares throughout the year averaged GH¢6.00 each.
Required:
a) Calculate the ratios for Obiya equivalent to those provided by the inter-firm comparison service.
(5 marks)
b) Write a report analyzing the operational performance, gearing, investment, and liquidity of Obiya Ltd based on a comparison with the sector averages. (10 marks)
Assess the financial performance and position of Light Ltd and Favour Ltd for acquisition purposes based on profitability, liquidity, and gearing ratios.
Salt Ltd is a Government Business Entity that would like to acquire 100% of a viable private company. It has obtained the following draft financial statements for two companies, Light Ltd and Favour Ltd. They operate in the same industry, and their managements have indicated they would be receptive to a takeover.
Statement of Profit or Loss for the year ended 31 December 2017:
Description
Light Ltd (GH¢’000)
Favour Ltd (GH¢’000)
Revenue
12,000
20,500
Cost of sales
(10,500)
(18,000)
Gross profit
1,500
2,500
Operating expenses
(240)
(500)
Finance costs
(210)
(600)
Profit before tax
1,050
1,400
Income tax expense
(150)
(400)
Profit for the year
900
1,000
Dividends paid
250
700
Statements of Financial Position as at 31 December 2017:
Description
Light Ltd (GH¢’000)
Favour Ltd (GH¢’000)
Assets
Non-current assets:
Freehold factory
4,400
–
Owned plant
5,000
2,200
Leased plant
–
5,300
Total non-current assets
9,400
7,500
Current assets:
Inventory
2,000
3,600
Trade receivables
2,400
3,700
Bank
600
–
Total current assets
5,000
7,300
Total assets
14,400
14,800
Equity and Liabilities
Equity shares of GH¢1 each
2,000
2,000
Property revaluation reserve
900
–
Retained earnings
2,600
800
Total equity
5,500
2,800
Non-current liabilities
Finance lease obligations
–
3,200
7% loan notes
3,000
–
10% loan notes
–
3,000
Deferred tax
600
100
Government grants
1,200
–
Total non-current liabilities
4,800
6,300
Current liabilities
Bank overdraft
–
1,200
Trade payables
3,100
3,800
Government grants
400
–
Finance lease obligations
–
500
Taxation
600
200
Total current liabilities
4,100
5,700
Total equity and liabilities
14,400
14,800
Notes:
i. Both companies operate from the same premises.
ii. Additional details of the two companies’ plant are:
Description
Light Ltd (GH¢’000)
Favour Ltd (GH¢’000)
Owned plant – Historical cost
8,000
10,000
Leased plant – Original fair value
–
7,500
There were no disposals of plant during the year by either company.
iii. The interest rate implicit within Favour Ltd’s finance leases is 7.5% per annum. For the purpose of calculating ROCE and gearing, all finance lease obligations are treated as long-term interest-bearing borrowings.
Required:
Assess the relative financial performance and financial position of Light Ltd and Favour Ltd for the year ended 31 December 2017 to inform the directors of Salt Ltd in their acquisition decision. Your analysis should focus on profitability, liquidity, and gearing. (15 marks)
You're reporting an error for "FR – Nov 2018 – L2 – Q4 – Financial Statement Analysis"
15 Marks
CR – May 2019 – L3 – Q4 – Analysis and interpretation of financial statements
The question requires calculation of financial ratios and analysis of the financial performance and cash position of Madina Ltd for the year ended 30 September 2018.
Below are the recently issued financial statements of Madina Ltd, a listed company, for the year ended 30 September 2018, together with comparatives for 2017.
Statement of Profit or Loss for the year ended 30 September:
Details
2018 (GH¢’000)
2017 (GH¢’000)
Revenue
125,000
90,000
Cost of Sales
(100,000)
(75,000)
Gross Profit
25,000
15,000
Operating Expenses
(13,000)
(11,000)
Finance Costs
(4,000)
–
Profit before Tax
8,000
4,000
Tax (at 25%)
(2,000)
(1,000)
Profit for the year
6,000
3,000
Statement of Financial Position as at 30 September:
Details
2018 (GH¢’000)
2017 (GH¢’000)
Non-Current Assets
Property, Plant, and Equipment
105,000
45,000
Goodwill
5,000
–
Total Non-Current Assets
110,000
45,000
Current Assets
Inventory
12,500
7,500
Receivables
6,500
4,000
Bank
–
7,000
Total Current Assets
19,000
18,500
Total Assets
129,000
63,500
Equity and Liabilities
Equity
Share Capital
50,000
50,000
Retained Earnings
7,000
6,000
Total Equity
57,000
56,000
Non-Current Liabilities
8% Loan Notes
50,000
–
Current Liabilities
Bank Overdraft
8,500
–
Trade Payables
11,500
6,500
Current Tax Payable
2,000
1,000
Total Current Liabilities
22,000
7,500
Total Equity and Liabilities
129,000
63,500
Additional Information:
On 1 October 2017, Madina Ltd acquired 100% of the net assets of Aboabu Ltd for GH¢50 million. In order to finance this transaction, Madina Ltd issued GH¢50 million 8% loan notes on the acquisition date.
Aboabu Ltd’s results for the year ended 30 September 2018 are shown below:
Aboabu Ltd’s Statement of Profit or Loss for the year ended 30 September:
Details
GH¢’000
Revenue
35,000
Cost of Sales
(20,000)
Gross Profit
15,000
Operating Expenses
(4,000)
Profit before Tax
11,000
Tax (at 25%)
(2,750)
Profit for the year
8,250
Aboabu Ltd has not paid any dividend during the year, but Madina Ltd paid a dividend of GH¢0.05 per share.
The following ratios have been calculated for Madina Ltd for the year ended 30 September 2017:
Return on capital employed: 7.1%
Gross profit margin: 16.7%
Net profit (before tax) margin: 4.4%
Required:
a) Calculate the equivalent ratios for Madina Ltd for 2018:
i) Including the results of Aboabu Ltd acquired during the year. (3 marks)
ii) Excluding all effects of the purchase of Aboabu Ltd. (3 marks)
b) Analyse the performance of Madina Ltd for the year ended 30 September 2018. (5 marks)
c) Analyse the cash position of Madina Ltd as at 30 September 2018. (4 marks)
Azure Plc is a company that trades its ordinary shares on the Ghana Stock Exchange. Below are the statements of profit or loss for the year ended 31 December 2020 and for the first three quarters in 2020 published in line with the Ghana Stock Exchange regulations:
Statements of profit or loss of Azure Plc:
Description
Year Ended 31 Dec 2020 (Audited)
Quarter 3 (Unaudited)
Quarter 2 (U
naudited)
Quarter 1 (Unaudited)
Revenue
GH¢ 2,829 million
GH¢ 544 million
GH¢ 810 million
GH¢ 624 million
Cost of sales
(GH¢ 1,754 million)
(GH¢ 346 million)
(GH¢ 489 million)
(GH¢ 412 million)
Gross profit
GH¢ 1,075 million
GH¢ 198 million
GH¢ 321 million
GH¢ 212 million
Other operating income
GH¢ 72 million
GH¢ 32 million
GH¢ 21 million
GH¢ 23 million
Administrative expenses
(GH¢ 572 million)
(GH¢ 94 million)
(GH¢ 183 million)
(GH¢ 146 million)
Distribution costs
(GH¢ 265 million)
(GH¢ 73 million)
(GH¢ 62 million)
(GH¢ 65 million)
Finance costs
(GH¢ 15 million)
(GH¢ 11 million)
(GH¢ 2 million)
(GH¢ 2 million)
Profit before tax
GH¢ 295 million
GH¢ 52 million
GH¢ 95 million
GH¢ 22 million
Tax
(GH¢ 101 million)
(GH¢ 17 million)
(GH¢ 31 million)
(GH¢ 11 million)
Profit for the year
GH¢ 194 million
GH¢ 35 million
GH¢ 64 million
GH¢ 11 million
Additional information:
The following ratios have been calculated for the relevant sector for the year ended 31 December 2020:
Return on year-end capital employed: 18.30%
Return on year-end equity: 16.05%
Profit (before interest and tax) margin: 12.1%
Gross profit margin: 43.22%
Current ratio: 2.60
Quick ratio: 1.25
Assets turnover: 1.02
Debt-to-equity ratio: 30.50%
Required:
Write a report to the Board of Directors of Azure Plc, analyzing the financial performance and financial position of the company using the above information to assist the Board in determining whether strategic adjustments are required and where, if any.
(20 marks)
You are a financial consultant of Synel Investments (SI). The Directors of SI have tasked you to evaluate the financial health of two wholesaling companies – Abodam Plc (Abodam) and Bossu Plc (Bossu) – to help them decide which entity to invest in. Assume that all other factors of the two companies have been considered except their current period’s relative financial performance and position. The financial statements of Abodam and Bossu for the year ended 31 December 2022 are provided below:
Additional information:
The Directors of Bossu announced at the beginning of the current period to repurchase 20% of the company’s issued shares in equal proportion over a three-year period. The purchase of the first tranche is expected to occur around February 2023. At the start of second quarter this year, the major commercial lender of Abodam triggered its covenant modification right to include stricter profit-based clauses in the loan agreement.
During the year, Abodam and Bossu paid ordinary dividends of GH¢450,000 and GH¢315,000 respectively.
Average borrowing rate for the two companies has remained 11% during the period.
Required:
a) Compute the following additional ratios for the two companies:
i) Return on year-end equity
ii) Return on year-end capital employed (where capital employed equals total assets less current liabilities)
iii) Trade receivables days
iv) Debt-to-equity
(8 marks)
b) Write a report to the board of SI to evaluate the relative financial performance and position of Abodam and Bossu, based on the following headings:
i) Profitability
ii) Working capital management
iii) Gearing
iv) Earnings per share
v) Bossu’s repurchase plan vi) Abodam’s loan covenant
You're reporting an error for "CR – Nov 2023 – L3 – Q5 – Analysis and interpretation of financial statements"
20 Marks
CR – Aug 2022 – L3 – Q5 – Analysis and interpretation of financial statements
This question requires writing a report that assesses the comparative performance of a company using various financial ratios (profitability, liquidity, efficiency, and gearing).
Wadie Ltd has been in operation for the past ten years. The company started operations in Kumasi with just three employees, but currently operates in all regions of Ghana, with over five hundred employees.
The final meeting for the year of the Board of Directors of the company is to be convened, and as a tradition, the Finance Manager presented an analysis of the financial performance of the company for the financial year ended 31 December 2021. Below are the financial statements for the year ended 31 December 2021:
Statement of Comprehensive Income for the year 31 December
Additional Information:
i) Finance income relates to interest earned on the company’s investment in Government of Ghana loan notes.
ii) Dividend payable represents the dividend declared or approved by shareholders at the last Annual General Meeting.
Required:
As the Finance Manager of the company, write a report to the Board of Directors, assessing the comparative performance of the company for the year ended 31 December 2021. Your report should use THREE (3) profitability ratios, TWO (2) liquidity ratios, THREE (3) efficiency ratios, and TWO (2) gearing ratios.
You're reporting an error for "CR – Aug 2022 – L3 – Q5 – Analysis and interpretation of financial statements"
10 Marks
CR – Nov 2016 – L3 – Q4b – Analysis and interpretation of financial statements
Write a report comparing Decimal Ltd’s financial performance with industry averages in terms of profitability, liquidity, efficiency, and shareholders’ investment.
Below are the financial ratios for the year 2015 for Decimal Ltd, a company engaged in the buying and shipment of agricultural products. The ratios for the industry have also been provided.
Ratios
Decimal Ltd
Industry Average
Quick ratio
0.52:1
0.84:1
Current ratio
1.20:1
1.80:1
Debtors collection period
46 days
41 days
Creditors payment period
70 days
50 days
Inventory holding period
58 days
48 days
Dividend yield
3.6%
9.0%
Debt to equity
85%
45%
Dividend cover
1.4 times
3.4 times
Gross profit margin
18%
28%
Net profit margin
8%
12.8%
Return on capital employed
28%
14%
Net assets turnover
4.2 times
1.9 times
Required:
Write a report to the Shareholders of Decimal Ltd assessing its performance in comparison with the industry in respect of profitability, liquidity, efficiency, and shareholders’ investment. (10 marks)
Presented below are the common-sized financial statements of Towobo Ltd over the last five years:
Vertical Common-Sized Statements of Profit or Loss for the Years Ended 31 December
%
2022
2021
2020
2019
2018
Revenue
100.00
100.00
100.00
100.00
100.00
Cost of sales
(88.58)
(85.45)
(84.92)
(87.36)
(92.70)
Gross profit
11.42
14.55
15.08
12.64
7.30
Distribution & marketing costs
(1.00)
(0.86)
(0.83)
(1.15)
(0.87)
Administrative expenses
(0.74)
(0.79)
(0.88)
(0.85)
(0.73)
Other operating income
2.06
1.78
0.77
0.58
0.69
Other operating expenses
(1.36)
(0.86)
(1.21)
(1.20)
(0.94)
Profit from operations
10.38
13.82
12.93
10.02
5.45
Finance cost
(0.02)
(0.04)
(0.02)
(0.05)
(0.10)
Profit before tax
10.36
13.78
12.92
9.97
5.35
Tax
(3.25)
(3.98)
(4.05)
(3.25)
(2.61)
Profit after tax
7.11
9.80
8.86
6.72
2.74
Vertical Common-Sized Statements of Financial Position as at 31 December
%
2022
2021
2020
2019
2018
Non-current assets
Property, plant & equipment
8.49
8.55
15.50
20.27
23.33
Intangible assets
0.52
0.72
0.44
0.51
0.70
Capital work-in-progress
0.13
0.39
7.39
0.28
0.66
Long-term loans & advances
0.33
0.22
0.52
3.20
3.65
Total non-current assets
9.47
9.88
23.85
24.26
28.31
Current assets
Inventories
14.20
13.19
25.51
40.61
32.25
Receivables
0.16
0.09
0.53
0.32
–
Prepayments, advances, & other receivables
22.33
17.65
6.21
10.69
20.33
Short-term investments
35.15
40.67
7.10
–
–
Cash and bank balances
18.69
18.52
36.80
24.12
19.11
Total current assets
90.53
90.12
76.15
75.74
71.69
Total assets
100.00
100.00
100.00
100.00
100.00
Equity
Issued, subscribed & paid-up capital
2.43
2.77
8.81
10.25
11.59
Retained earnings
16.50
10.69
18.24
3.78
0.62
Other reserves
10.10
11.91
21.95
22.74
7.20
Total equity
29.03
25.37
49.00
36.77
19.41
Non-current liabilities
Pensions liabilities
0.16
0.12
0.51
0.38
0.36
Deferred tax
0.74
0.71
0.83
–
–
Deferred revenue
0.02
0.02
0.06
0.08
0.10
Total non-current liabilities
0.92
0.85
1.40
0.46
0.46
Current liabilities
Trade, dividend & other payables
70.04
73.15
49.60
62.73
80.02
Current portion of deferred revenue
0.01
0.01
0.04
0.03
–
Income tax
–
0.62
–
0.01
0.11
Total current liabilities
70.05
73.78
49.60
62.77
80.13
Total equity & liabilities
100.00
100.00
100.00
100.00
100.00
Required:
As the Financial Advisor to ABC Mutual Funds, report on the financial health or otherwise of Towobo Ltd based on the vertically analysed financial statements and advise ABC Mutual Funds on whether to invest in Towobo Ltd. Your report should focus on the profitability and cost control analysis, asset structure, capital structure, and working capital structure.
Required:
