- 20 Marks
MA – L2 – Q71 – Divisional performance
Assess GSO's financial performance in Years 4 and 5, focusing on Primeland and Seconland contributions.
Question
Trading in Primeland in Year 1, and in Year 3 it opened a similar operation in a neighboring country, Scanland. The divisional managers in Primeland and Scanland have the authority to make most operational decisions, but decisions relating to acquisitions and financing are reserved for the board of directors of GSO.
Financial data is shown below for both divisions, for the years ending 31st December Year 4 and Year 5.
| Actual results | Year 4 | Year 5 | ||||
|---|---|---|---|---|---|---|
| Primeland GH₵000 | Seconland GH₵000 | Total GH₵000 | Primeland GH₵000 | Seconland GH₵000 | Total GH₵000 | |
| Revenues | 4,300 | 950 | 5,250 | 4,500 | 1,200 | 5,700 |
| Salaries and fees | 1,400 | 580 | 1,980 | 1,500 | 600 | 2,100 |
| Other direct costs | 1,450 | 430 | 1,880 | 1,480 | 430 | 1,910 |
| 2,850 | 1,010 | 3,860 | 2,980 | 1,030 | 4,010 | |
| Marketing | 240 | 70 | 310 | 290 | 95 | 385 |
| Depreciation/amortization | 330 | 45 | 380 | 330 | 95 | 425 |
| Interest cost | 110 | 95 | ||||
| 570 | 115 | 800 | 620 | 190 | 905 | |
| Total costs | 3,420 | 1,125 | 4,660 | 3,600 | 1,220 | 4,915 |
| Profit/(loss) | 880 | (175) | 590 | 900 | (20) | 785 |
Summary statements of financial position
Year 4
| Primeland GH₵000 | Scanland GH₵000 | Total GH₵000 | |
|---|---|---|---|
| Non-current assets | 2,610 | 240 | 2,850 |
| Net current assets | 710 | 140 | 850 |
| 3,320 | 380 | 3,700 | |
| Loan stock | 1,400 | ||
| 2,300 | |||
| Capital and reserves | 2,300 |
Year 5
| Primeland GH₵000 | Scanland GH₵000 | Total GH₵000 | |
|---|---|---|---|
| Non-current assets | 2,600 | 480 | 3,080 |
| Net current assets | 1,250 | 190 | 1,440 |
| 3,850 | 670 | 4,520 | |
| Loan stock | 1,200 | ||
| 3,320 | |||
| Capital and reserves | 3,320 |
Required:
(a) Assess the financial performance of GSO in Year 4 and Year 5, and the contribution of the operations in Primeland and Scanland to the overall performance.
(b) Suggest, with reasons, four additional items of information that you would require in order to provide a more comprehensive financial analysis of performance.
(c) Suggest, with reasons, four factors that should be taken into consideration when comparing performance in Primeland and Seconland.
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