- 20 Marks
FR – L2 – Q99 – Presentation of Financial Statements
Calculate financial ratios for Jeck Ltd for the year ended 31 March 20X9 based on provided financial statements.
Question
Jeck Ltd is a listed company that assembles domestic electrical goods which it then sells to both wholesale and retail customers. Jeck Ltd’s management was disappointed in the company’s results for the year ended 31 March 20X8. In an attempt to improve performance the following measures were taken early in the year ended 31 March 20X9:
- 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 Jeck Ltd to dispose of surplus plant.
Jeck Ltd’s summarised financial statements for the year ended 31 March 20X9 are set out below:
Statement of Financial Position as at 31 March 20X9
| GH$’000 | GH$’000 |
|---|---|
| Non-current assets | |
| Property, plant and equipment (note (ii)) | 550 |
| Current assets | |
| Inventory | 250 |
| Trade receivables | 360 |
| Bank | Nil |
| 610 | |
| Total assets | |
| Equity and liabilities | |
| Stated capital (400m shares) | 100 |
| Income surplus | 380 |
| 480 | |
| Non-current liabilities | |
| 8% loan notes | 200 |
| Current liabilities | |
| Bank overdraft | 10 |
| Trade payables | 430 |
| Current tax payables | 40 |
| 480 | |
| Total equity and liabilities |
Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 March 20X9
| GH$’000 |
|---|
| Revenue (25% cash sales) |
| Cost of sales |
| Gross profit |
| Operating expenses |
| Operating profit |
| Profit on disposal of plant (note (i)) |
| Financial charges |
| Profit before tax |
| Income tax expense |
| Profit for the year |
Below are ratios calculated for the year ended 31 March 20X8:
- Return on year-end capital employed (profit before interest and tax over total assets less current liabilities): 17%
- Net assets (equal to capital employed) turnover: 4 times
- Gross profit margin: 6.3%
- Net profit (before tax) margin: Not provided
- 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:
(i) Jeck Ltd received GH$120m from the sale of plant that had a carrying amount of GH$80m at the date of its sale.
(ii) The market price of Jeck Ltd’s share throughout the year averaged GH$3.75 each. There were no issues or redemption of shares or loans during the year.
(iii) Dividends paid during the year ended 31 March 20Y0 amounted to GH$90m, maintaining the same dividend paid in the year ended 31 March 20X9.
Required:
(a) Calculate ratios for the year ended 31 March 20X9 (showing your workings) for Jeck Ltd, equivalent to those provided above.
(b) Analyse the financial performance and position of Jeck Ltd for the year ended 31 March 20X9 compared to the previous year.
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