- 14 Marks
Question
(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.
Answer
(a) Ratio Computation for 2024 & 2023
| Ratio | Formula | 2024 | 2023 |
|---|---|---|---|
| Operating profit margin | (PBIT / Revenue) × 100 | 24.78% | 25.04% |
| Return on parent’s equity | (Profit attributable to parent’s equity / Parent’s equity) × 100 | 33.92% | 34.56% |
| Earnings per share | Profit attributable to parent’s equity / Number of ordinary shares | 130.36p | 131.67p |
| Current ratio | Current assets / Current liabilities | 1.21:1 | 1.08:1 |
| Trade receivables days | (Trade receivables / Revenue) × 365 | 20 days | 21 days |
| Total liabilities to total assets % | (Total liabilities / Total assets) × 100 | 49.6% | 47.72% |
(b) Report to the Directors of DPEF
To: Directors of DPEF
From: Financial Consultant
Date: 1 July 2024
Subject: Financial and Non-Financial Evaluation of Nsawkaw PLC
Introduction:
This report evaluates the financial performance and position of Nsawkaw PLC (NK) for the years 2023 and 2024 using key financial ratios. The report further considers sustainability factors in assessing the company’s prospects and viability.
Financial Analysis:
- Profitability: NK’s operating profit margin decreased slightly from 25.04% to 24.78%, indicating a small rise in operational costs. Return on parent’s equity also declined marginally, showing a slower profit growth relative to equity.
- Liquidity & Working Capital: The current ratio improved from 1.08 to 1.21, indicating enhanced liquidity, while trade receivables collection time reduced by one day, suggesting better credit management.
- Financial Structure: The total liabilities to total assets ratio increased from 47.72% to 49.6%, signaling a higher reliance on external financing.
- Earnings per Share (EPS): EPS slightly declined, reflecting a higher number of issued shares without a proportional increase in earnings.
Sustainability & Non-Financial Performance:
- NK has reduced its Scope 1 & 2 carbon emissions from 780 to 650 tonnes, showcasing environmental commitment.
- The percentage of women in senior management increased from 16% to 21%, enhancing diversity.
- Work-related injury rates improved, demonstrating a safer workplace.
Conclusion:
While financial performance shows minor declines in profitability and an increase in leverage, NK has improved liquidity and sustainability efforts. These long-term sustainability efforts position NK favorably for investment.
(c) Double Materiality Concept
- Financial Materiality: Refers to information that affects a company’s financial performance, impacting investor decision-making (e.g., revenue, profitability, liabilities).
- Impact Materiality: Focuses on a company’s effect on society and the environment (e.g., carbon footprint, labor practices), crucial for sustainability reporting.
- Tags: Compliance, Cybersecurity, Digital Transformation, Ethics, Financial Analysis, Ratio Analysis
- Level: Level 3
- Uploader: Salamat Hamid
