Question Tag: Ratio Analysis

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  • 14 Marks

CR – Nov 2024 – L3 – Q5b – Financial Performance & Digital Technology Integration

Evaluating the financial performance of Nsawkaw PLC and addressing challenges of digital technology integration in accounting.

(a) Compute the following ratios for the years ended 2024 & 2023:
i) Operating profit margin
ii) Return on parent’s equity
iii) Earnings per share
iv) Current ratio
v) Trade receivables days
vi) Total liabilities to total assets %

(b) Write a report to the directors of DPEF evaluating the inter-period financial performance and position of NK using the above six (6) ratios. The report should draw attention to how the non-financial metrics combine with the financial counterparts to showcase the prospects and viability of NK.                                                                      c) The concept of double materiality is relevant to sustainability impacts and dependencies. It
incorporates financial materiality and impact materiality. 

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  • 6 Marks

CR – Nov 2024 – L3 – Q5a – Financial Analysis and Investment Evaluation

Compute financial ratios for Nsawkaw PLC to evaluate its financial performance for investment recommendation.

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:

  1. The total number of equity shares outstanding was 1.2 million and 1.4 million at 30 June 2023 and 30 June 2024 respectively.
  2. 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.
  3. Non-current liabilities at 30 June 2023 and 30 June 2024 amounted to GH¢250,800 and GH¢308,510 respectively.
  4. 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:

  1. Operating profit margin
  2. Return on parent’s equity
  3. Earnings per share
  4. Current ratio
  5. Trade receivables days
  6. Total liabilities to total assets %

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  • 8 Marks

PSAF – Nov 2024 – L2 – Q4a – Financial Ratio Analysis

Compute financial ratios for Ghana Wind Farms LTD to analyze performance trends.

Ghana Wind Farms LTD, a State-Owned Enterprise (SOE), has appointed a new Board of Directors in January 2023. The new Board, after settling for a year, is interested in assessing their performance for the year 2023 against the performance of the previous Board in the year 2022 through ratio analysis. Below is the financial statement of Ghana Wind Farms LTD for the two years.

Ghana Wind Farms LTD

Statement of Profit or Loss for the Year Ended 31 December 2023

2023 (GH¢) 2022 (GH¢)
Revenue 9,860,000 6,218,000
Direct Cost (5,905,000) (5,822,000)
Gross Profit 3,955,000 396,000
Distribution Costs (297,000) (264,000)
Administrative Expenses (505,000) (455,000)
Other Income 236,000 13,000
Other Gains – 1,482,000
Operating Profit 3,389,000 1,172,000
Finance Cost (1,000,000) (334,000)
Profit Before Tax Expense 2,389,000 838,000
Tax Expense (500,000) (144,000)
Profit After Tax 1,889,000 694,000

Ghana Wind Farms LTD

Statement of Financial Position as at 31 December 2023

2023 (GH¢) 2022 (GH¢)
ASSETS
Non-Current Assets
Property, Plant & Equipment 17,000,000 15,000,000
Investment 5,000 2,000
Advances & Loans – 30,000
Total Non-Current Assets 17,005,000 15,032,000
Current Assets
Inventories 687,000 546,000
Trade and Other Receivables 2,829,000 1,978,000
Prepayments 87,000 42,000
Cash and Cash Equivalents 383,000 434,000
Total Current Assets 3,986,000 3,000,000
TOTAL ASSETS 20,991,000 18,032,000
EQUITY & LIABILITIES
Equity
Government Equity 8,000 8,000
Other Government Equity 613,000 306,000
Capital Surplus 8,471,000 7,599,000
Income Surplus (1,434,000) 478,000
Total Equity 7,970,000 8,697,000
Non-Current Liabilities
Deferred Credit 6,692,000 670,000
Deferred Tax Liabilities 2,498,000 2,572,000
Borrowings (Due After One Year) 1,297,000 950,000
Total Non-Current Liabilities 10,487,000 4,192,000
Current Liabilities
Bank Overdraft 166,000 180,000
Provision for Company Tax 109,000 109,000
Trade and Other Payables 1,820,000 4,516,000
Borrowings (Due Within One Year) 439,000 338,000
Total Current Liabilities 2,534,000 5,143,000
Total Liabilities 13,021,000 9,335,000
TOTAL EQUITY AND LIABILITIES 20,991,000 18,032,000

Required:

a) Compute the following ratios:

i) Current Ratio
ii) Quick Ratio
iii) Inventory Turnover (Days)
iv) Trade Receivable Collection Period (Days)
v) Trade Payables Period (Days)
vi) Working Capital Cycle
vii) Interest Cover Ratio
viii) Total Debt – Total Asset Ratio

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  • 10 Marks

FR – Nov 2024 – L2 – Q4b – Financial Performance Assessment of Acquisition Targets

Assessment of financial performance and position of Suah LTD and Nagbe LTD to assist Dukuly LTD in 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, 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.

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  • 10 Marks

FR – Nov 2024 – L2 – Q4a – Financial Ratios and Performance Evaluation

Calculation of key financial ratios for Nagbe LTD to compare with Suah LTD and evaluate financial performance.

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:

  1. Carrying Amount of Plant Assets:

    • Suah LTD: GH¢4,800,000
    • Nagbe LTD: GH¢2,000,000

  2. 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.

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  • 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:

  1. 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.
  2. 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)

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  • 1 Marks

AAA – Nov 2011 – L3 – SA – Q17 – Audit Reporting

Identifies the technique involving ratios and statistical analysis to obtain audit evidence.

The computation of ratios and trends and the use of statistical formula to obtain audit evidence is:

  • A. Hot review
  • B. Audit sampling
  • C. Substantive test
  • D. Analytical review
  • E. Audit review

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  • 20 Marks

CR – May 2024 – L3 – SB – Q2 -Consolidated Financial Statements (IFRS 10)

Memo advising on acquisition decision based on financial analysis of Betta and Gamma Ltd.

Alpha PLC is an entity which has grown in recent years by acquiring established businesses. Alpha PLC is contemplating acquiring Betta Limited and Gamma Limited, both operating in the same industry as Alpha PLC. The management of Alpha PLC has indicated a total acquisition price of N12 million for each company. The following financial statements provide insight into the performance and financial position of both Betta Limited and Gamma Limited as at September 30, 2020:

  1. Statement of Profit or Loss (for the year ended September 30, 2020):
    Betta Ltd (N’000) Gamma Ltd (N’000)
    Revenue 25,000 40,000
    Cost of sales (19,000) (32,800)
    Gross profit 6,000 7,200
    Distribution costs (800) (1,400)
    Administrative expenses (450) (900)
    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
  2. Statement of Financial Position (as at September 30, 2020):
    Betta Ltd (N’000) Gamma Ltd (N’000)
    Non-current assets
    Property, plant and equipment
    – Property – 3,000
    – Owned plant and equipment 4,800 2,000
    – Leased plant and equipment – 5,300
    Total non-current assets 4,800 10,300
    Current assets
    Cash at bank and in hand 1,600 200
    Trade receivables 1,600 5,100
    Inventories 1,600 3,400
    Total current assets 4,800 8,700
    Total assets 9,600 19,000
    Equity and liabilities
    Ordinary shares (N1.00 each) 1,000 2,000
    Revaluation surplus on property – 900
    Retained earnings 1,600 2,700
    Total equity 2,600 5,600
    Non-current liabilities
    Finance lease obligation – 4,200
    5% loan notes (Dec 2026) 5,000 –
    10% loan notes (Dec 2026) – 5,000
    Total non-current liabilities 5,000 9,200
    Current liabilities
    Trade payables 1,250 2,100
    Finance lease obligation – 1,000
    Tax payable 750 1,100
    Total current liabilities 2,000 4,200
    Total equity and liabilities 9,600 19,000
  3. Additional Ratios Calculated:
    • Gross profit margin: Betta 24.0%, Gamma 18.0%
    • Profit margin (before interest and tax): Betta 19.0%, Gamma 12.3%
    • Return on capital employed (ROCE): Betta 62.5%, Gamma 31.0%
    • Current ratio: Betta 2.4:1, Gamma 2.1:1
    • Acid test ratio: Betta 1.6:1, Gamma 1.26:1
    • Net assets turnover: Betta 3.3 times, Gamma 2.5 times
    • Gearing: Betta 65.8%, Gamma 64.6%

Required:

a. Write a memo to the Director of Alpha PLC advising him on how to make the investment decision considering the performance and financial position of Betta Limited and Gamma Limited for the year ended September 30, 2020. (14 Marks)

b. What other qualitative factors should the management of Alpha PLC take into consideration assuming Gamma Limited is a foreign subsidiary? (6 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

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

Chisom Plc experienced rapid growth in recent years through the acquisition and integration of other companies. Chisom Plc is interested in acquiring Oyowood Limited, a retailing company, which is one of several companies owned and managed by the same family.

The summarized financial statements of Oyowood Limited for the year ended December 31, 2022, are as follows:

From the above financial statements, Chisom Plc has calculated for Oyowood Limited the ratios below for the year ended December 31, 2022. It has also obtained the equivalent ratios for the retail sector average, which can be taken to represent Oyowood‟s sector.

Additional Information:

  1. Oyowood Limited buys all inventories from family companies at a 10% discount below market prices.
  2. Post-acquisition, Chisom Plc would replace the board of directors with a new board at a remuneration cost of ₦2.5 million per annum.
  3. Directors’ loan accounts will be refinanced through a 10% interest-bearing commercial loan of the same amount.
  4. The purchase price for Oyowood Limited is expected to be ₦30 million.

Required:

a. As the financial analyst for Chisom Plc, recalculate the ratios for Oyowood Limited after adjustments based on points (i) to (iv) above. (10 Marks)

b. Draft a memo to the managing director of Chisom Plc commenting on the adjusted performance of Oyowood Limited. (10 Marks)

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  • 12 Marks

FR – Nov 2016 – L2 – Q4a – Financial Statement Analysis

Analyze the financial performance and financial position of Ashtown Ltd based on industry ratios for the years 2014 and 2015.

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.

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  • 20 Marks

FR – May 2018 – L2 – Q4 – Financial Statement Analysis

Calculate financial ratios for Obiya Ltd based on its financial statements for the year ended 30 September 2017.

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)

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  • 15 Marks

FR – Nov 2018 – L2 – Q4 – Financial Statement Analysis

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)

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  • 20 Marks

FR – Aug 2022 – L2 – Q4 – Financial Statement Analysis

Calculate various financial ratios for Pat Plc and compare them to industry averages and Write a report to assess the financial performance and position of Pat Plc relative to industry standards based on the calculated ratios.

Pat Plc is a listed Ghanaian company that produces textile prints for local and African markets. During the year ended 31 March 2022, the following financial information was available:

Gross profit: GH¢12,150
Cost of sales: GH¢77,850
Operating profit before interest and tax: GH¢7,130
Finance cost: GH¢920
Tax charged to profit or loss: GH¢1,400
Inventory turnover: 3.6 times
Dividend per share: GH¢0.36
Dividend yield: 6%

Extracts from the Statement of Financial Position as at 31 March 2022:

Required:
a. Based on the information provided, compute the following ratios for Pat Plc:
i) Profit (after tax) margin
ii) Current ratio
iii) Return on Capital Employed (ROCE)
iv) Receivables period
v) Price/Earnings ratio
vi) Debt/Equity ratio

b. Using the ratios computed in Question 4a, write a report to the Board of Directors of Pat Plc assessing the financial performance and financial position of the entity, relative to its industry.

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  • 20 Marks

FR – May 2019 – L2 – Q4a – Financial Statement Analysis

Calculation of various financial ratios based on the financial statements of Zangi Ltd for 2017 and 2018.

Zangi Ltd is a private company in Ghana, and extracts from its most recent financial statements are provided below:

Statement of profit or loss for the year ended 31 March:

Required:

a) Calculate the following ratios using the information in the financial statements above:

  • i) Operating profit margin
  • ii) Gross profit margin
  • iii) Return on assets employed
  • iv) Debt to equity
  • v) Interest cover
  • vi) Current ratio
  • vii) Quick ratio

b) Comment on the profitability, liquidity, and gearing of the company for the two-year periods based on the ratios computed above and advice management where appropriate.

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  • 20 Marks

FR – Nov 2015 – L2 – Q2 – Financial Statement Analysis

This question requires calculating financial ratios and analyzing Kack Ltd's financial performance and position for the year ended 31 March 2015 compared to the previous year.

Kack Ltd is a listed company that assembles domestic electrical goods which it then sells to both wholesale and retail customers. Kack Ltd’s management was disappointed in the company’s results for the year ended 31 March 2014. In an attempt to improve performance, the following measures were taken early in the year ended 31 March 2015:

  • A national advertising campaign was undertaken.
  • Rebates to all wholesale customers purchasing goods above set quantity levels were introduced.
  • The assembly of certain lines ceased and was replaced by bought-in completed products. This allowed Kack Ltd to dispose of surplus plant.

Kack Ltd’s summarised financial statements for the year ended 31 March 2015 are set out below:

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2015

Description GHSm
Revenue (25% cash sales) 4,000
Cost of sales (3,450)
Gross profit 550
Operating expenses (370)
Operating profit 180
Profit on disposal of plant (note (i)) 40
Financial charges (20)
Profit before tax 200
Income tax expense (50)
Profit for the year 150

STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2015

Description GHSm GHSm
Non-current assets
Property, plant, and equipment (note (ii)) 550
Current assets
Inventory 250
Trade receivables 360
Bank nil
Total current assets 610
Total assets 1,160
Equity and liabilities
Equity
Stated capital (400m shares) 100
Income surplus 380
Total equity 480
Non-current liabilities
8% loan notes 200
Current liabilities
Bank overdraft 10
Trade payables 430
Current tax payables 40
Total current liabilities 480
Total equity and liabilities 1,160

Below are ratios calculated for the year ended 31 March 2014:

  • Return on year-end capital employed (profit before interest and tax over total assets less current liabilities): 28.1%
  • Net assets (equal to capital employed) turnover: 4 times
  • Gross profit margin: 17%
  • Net profit (before tax) margin: 6.3%
  • Current ratio: 1.6:1
  • Closing inventory holding period: 46 days
  • Trade receivables’ collection period: 45 days
  • Trade payables’ payment period: 55 days
  • Dividend yield: 3.75%
  • Dividend cover: 2 times

Notes:

  1. Kack Ltd received GHS 120 million from the sale of plant that had a carrying amount of GHS 80 million at the date of its sale.
  2. The market price of Kack Ltd’s share throughout the year averaged GHS 3.75 each.
  3. There were no issues or redemption of shares or loans during the year.
  4. Dividends paid during the year ended 31 March 2015 amounted to GHS 90 million, maintaining the same dividend paid in the year ended 31 March 2014.

Required:

a) Calculate ratios for the year ended 31 March 2015 (showing your workings) for Kack Ltd, equivalent to those provided above.
(10 marks)

b) Analyse the financial performance and position of Kack Ltd for the year ended 31 March 2015 compared to the previous year.
(10 marks)
(Total: 20 marks)

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  • 8 Marks

CR – May 2018 – L3 – Q4c – Analysis and Interpretation of Financial Statements

Analyze and compare the financial performance of two companies in terms of operating performance, liquidity, gearing, and investment ratios.

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:

Ratios Fordland Ltd Fiatland Ltd
Return on Capital Employed (ROCE) 24.10% 30%
Net Assets Turnover 1.9 times 2.5 times
Gross Profit Margin 35% 20%
Net Profit Margin 10.50% 38%
Current Ratio 1.0:1 2.0:1
Quick Ratio 0.8:1 1.0:1
Inventory Holding Period 60 days 90 days
Receivables Collection Period 58 days 60 days
Payables Payment Period 50 days 50 days
Debt to Equity Ratio 50% 30%
Dividend Yield 3% 2%
Dividend Cover 2 times 1.5 times

Required:
Write a report analyzing and comparing the financial performance of Fordland Ltd and Fiatland Ltd. The report should cover operating performance, liquidity, gearing, and investment ratios. (8 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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  • 20 Marks

CR – April 2022 – L3 – Q5 – Analysis and interpretation of financial statements

Write a report analyzing the financial performance and financial position of Azure Plc using financial ratios and sector averages.

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)

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  • 20 Marks

CR – Nov 2023 – L3 – Q5 – Analysis and interpretation of financial statements

Analyze and compare the financial performance and position of two companies, Abodam Plc and Bossu Plc, using various financial ratios and metrics.

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:

  1. 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.

  1. During the year, Abodam and Bossu paid ordinary dividends of GH¢450,000 and GH¢315,000 respectively.
  2. 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

(12 marks)

(Total: 20 marks)

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