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