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

Recompute ratios excluding acquisition effects & evaluate financial/non-financial performance of Pampa PLC; identify ethical issues for GFC under ICAG Code.

Question

a) Pampa PLC operates across retail, technology and hospitality industries in Ghana. The group consists of Pampa PLC and three (3) fully owned subsidiaries. Below are the group’s consolidated financial statements for the year ended 30 September 2025 (along with the comparative 2024 year):

Consolidated statement of profit or loss for the year ended 30 September 2025 2024 GH¢ million GH¢ million Revenue 1,540.8 1,004.5 Cost of sales (922.2) (588.9) Gross profit 618.6 415.6 Selling costs (264.8) (190.8) Administrative expenses (154.4) (91.1) Operating profit 199.4 133.7 Net finance costs (39.5) (13.2) Profit before tax 159.9 120.5 Tax @ 20% (32.0) (24.1) Profit for the period 127.9 96.4 Other comprehensive income 15.3 6.5 Total comprehensive income 143.2 102.9

Abridged consolidated statement of financial position as of 30 September 2025, 2024, GH¢ million GH¢ million non-current assets 1,330.3 906.5 Current assets 674.7 549.4 2,005.0 1,455.9 Equity and liabilities Ordinary share capital 450.0 300.0 Retained earnings 770.4 654.2 Other reserves 100.4 85.1 Long-term borrowings 355.7 104.7 Current liabilities 328.5 311.9 2,005.0 1,455.9

The following notes are important:

On 1 April 2025, Pampa PLC completed the purchase of a 100% equity interest in Ndaa LTD, a large supermarket, for GH¢280 million. The consideration was financed with both share-exchange and cash from a specific-purpose long-term syndicated credit facility. The fair value of the share exchange component was GH¢130 million. The acquired net assets of Ndaa LTD included a 3-year term loan of GH¢90 million which had been arranged on 1 October 2024. The rates of interest on the syndicated and the term loans are 16% p.a. and 18% p.a. respectively. Ndaa LTD held no other interest-carrying debts up to 30 September 2025. During the current period, Ndaa LTD generated revenue of GH¢210 million, operating profit of GH¢32.2 million, profit (after 20% tax) of GH¢12.8 million, and other comprehensive income of GH¢2.6 million. All of these items should be considered to have occurred evenly throughout the year.
The following metrics, determined based on consolidated figures, are also relevant: 2025 2024 Non-financial metrics Total carbon emissions (CO₂e) 251,000 240,000 Total waste generated (kg) 109,100 80,600 Difference between CEO and median annual pay of junior employees (GH¢000) 225 202 Effective (statutory) tax rate in % 12(25) 18(25) Financial ratios Acid-test ratio 1.02 0.99 Accounts receivable period (in weeks) 3.3 3.1 Accounts payable period (in weeks) 4.0 3.5 Operating margin 12.9% 13.3% ROCE 12.0% 11.7% Return on equity 9.7% 10.1% Debt/equity ratio 26.9% 9.9%

During the current year 2025, Ndaa LTD evenly emitted 58,000 carbon dioxide equivalent (CO₂e) and generated a total waste of 49,200 kg.

Required: i) Recompute the following ratios for the year ended 30 September 2025 after excluding the effects of Ndaa LTD:  Operating margin Return on capital employed Return on equity Debt/equity ratio

ii) As the Finance Officer of the group, write a report to the board to evaluate the financial and nonfinancial performance of Pampa PLC for the year ended 30 September 2025, relative to the comparative year, using the metrics in Note (2) and the computed ratios (in “i” above). Your analysis should clearly highlight how the acquisition of Ndaa LTD has affected Pampa PLC’s performance.

b) You are the newly appointed Group Financial Controller (GFC) of Koranten Agro LTD (KAL), a rapidly growing agribusiness headquartered in Accra, Ghana, with subsidiaries across West Africa. The company is preparing for a listing on the Ghana Stock Exchange and is close to securing a €30 million sustainability-linked loan from international lenders. To support both initiatives, the company is placing strong emphasis on its financial performance and ESG credentials, closely monitored by auditors, regulators and investors.

During the year-end reporting process, several issues arose that raise serious ethical and professional concerns under IFRS Accounting standards and the ICAG Code of Ethics and Conduct.

First, revenue from a major export contract has been recognized, even though the goods had not been shipped or cleared by customs at year-end. Under IFRS 15: Revenue from Contracts with Customers…

When you raise your concerns, leadership downplays them as “unnecessary drama” and urges you to stay aligned “until the deal is done.” With the Audit Committee meeting approaching, you face a dilemma: stay silent, escalate, or step aside.

Required: Identify and briefly explain FOUR key ethical issues you are facing as the GFC at KAL, with reference to the fundamental ethical principles in the ICAG Code of Ethics and Conduct.

Answer

a) i) Re-computation of ratios (excluding effects of Ndaa LTD)

Formula	2025 (adjusted)
(i) Operating margin	Operating profit × 100 / Revenue 183.3 × 100 / 1,435.8 = 12.77%
(ii) ROCE	Profit before interest and tax × 100 / Capital employed 183.3 × 100 / 1,298.8 = 14.11%
(iii) Return on equity	Profit attributable to equity shareholders × 100 / Equity 121.5 × 100 / 1,183.1 = 10.27%
(iv) Debt/equity ratio	Long-term liabilities × 100 / Total equity 115.7 × 100 / 1,183.1 = 9.78%

Workings Adjusting the 2025 consolidated figures for the effects of Ndaa LTD (6/12 post-acquisition):

Revenue: 1,540.8 – (210 × 6/12) = 1,435.8
Operating profit: 199.4 – (32.2 × 6/12) = 183.3
Profit after tax: 127.9 – (12.8 × 6/12) = 121.5
Other comprehensive income: 15.3 – (2.6 × 6/12) = 14
Total comprehensive income: 121.5 + 14 = 135.5

Equity adjustments:

Share capital: 450 – 130 = 320
Retained earnings: 770.4 – 127.9 + 121.5 = 764
Other reserves: 100.4 – 15.3 + 14 = 99.1
Total equity: 1,183.1

Capital employed:

Total assets 2,005 – current liabilities 328.5 = 1,676.5 (adjusted for post-acquisition effects leading to CE of 1,298.8 after equity reduction of 137.7)

Long-term borrowings adjusted: 355.7 – (post-acquisition syndicated loan portion) leading to 115.7

a) ii) Report to the Board (To: The Board of Directors From: Finance Officer Date: 3 November 2025 Subject: Evaluation of the financial and nonfinancial performance of Pampa PLC for the year ended 30 September 2025)

Introduction This report evaluates the financial and nonfinancial performance of Pampa PLC for the year ended 30 September 2025 relative to 2024, incorporating the impact of the acquisition of Ndaa LTD on 1 April 2025.

Profitability

Operating margin deteriorated slightly from 13.3% to 12.9% on a consolidated basis. Excluding Ndaa LTD, it improves to 12.77% (still below 2024), indicating core operations faced margin pressure possibly from higher costs. Ndaa LTD’s lower margins (post-acquisition) contributed to the decline.
ROCE improved marginally from 11.7% to 12.0% consolidated, but adjusted excluding Ndaa LTD rises to 14.11%, showing stronger underlying return on capital before acquisition effects.
Return on equity fell from 10.1% to 9.7% consolidated, but adjusted to 10.27% excluding Ndaa LTD, reflecting dilution from share issuance and added debt.

Liquidity Acid-test ratio improved slightly from 0.99 to 1.02. Receivables and payables periods lengthened marginally, suggesting stable working capital management.

Gearing Debt/equity ratio rose sharply from 9.9% to 26.9% due to acquisition financing (syndicated loan and share exchange). Adjusted excluding Ndaa LTD effects, it falls to 9.78%, indicating the increase is acquisition-driven rather than core operations.

Non-financial metrics

Carbon emissions rose from 240,000 to 251,000 CO₂e (+4.6%); excluding Ndaa LTD’s 58,000, core emissions ≈193,000 (reduction trend possible).
Waste generated increased significantly from 80,600 kg to 109,100 kg; Ndaa LTD contributed 49,200 kg, so core waste ≈59,900 kg (improvement).
CEO-median pay gap widened from GH¢202,000 to GH¢225,000, raising equity concerns.
Effective tax rate fell from 18% to 12% (vs statutory 25%), potentially due to incentives or structuring.

Overall, the acquisition of Ndaa LTD boosted revenue and scale but introduced higher gearing, margin dilution, and environmental impact. Core (pre-acquisition) performance shows resilience in ROCE and equity returns, with improved sustainability indicators excluding the subsidiary. Strategic focus should address integration, cost control, and ESG alignment.

b) Four key ethical issues (with reference to ICAG Code of Ethics fundamental principles)

Integrity — Recognizing revenue before transfer of control (per IFRS 15) misstates financial performance. Signing off on inaccurate statements breaches the duty to be straightforward and honest.
Objectivity — Pressure from leadership to overlook issues (“unnecessary drama”) and align “until the deal is done” impairs independence and impartial judgment, creating threats from undue influence.
Professional competence and due care — Failing to apply IFRS 15 correctly and ignoring misstatements in financial/ESG reports demonstrates lack of diligence and competence in ensuring accurate reporting.
Professional behavior — Issuing misleading financial statements to support listing and loan procurement could discredit the profession and breach compliance with laws/regulations.

(Other principles like confidentiality may apply in escalation, but the above four are primary.)

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2025

Uploader: Samuel Duah