Topic: Analysis and Interpretation of Financial Statements

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CR – Nov 2024 – L3 – Q5b – Financial Performance & Digital Technology Integration

Evaluating the financial performance of Nsawkaw PLC and addressing challenges of digital technology integration in accounting.

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

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Tags: Compliance, Cybersecurity, Digital Transformation, Ethics, Financial Analysis, Ratio Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements, Beyond financial reporting
Series: Nov 2024

CR – Nov 2024 – L3 – Q5a – Financial Analysis and Investment Evaluation

Compute financial ratios for Nsawkaw PLC to evaluate its financial performance for investment recommendation.

Question

Nsawkaw PLC (NK), a gold processing and trading company, has been identified by Djaraye Private Equity Fund (DPEF) as a target for long-term equity investment. As a financial consultant of DPEF, you have been tasked to evaluate the integrated financial condition of NK and make an investment recommendation.

Below are the summarised versions of NK’s Consolidated Financial Statements for the year ended June 30, 2024 (together with its comparative period):

Summarised Consolidated Statement of Profit or Loss for the year ended 30 June 2024

	2024 (GH¢000)	2023 (GH¢000)
Revenue	2,538,000	2,125,000
Operational expenses	(1,909,100)	(1,592,900)
Interest costs	(186,700)	(157,250)
Taxation	(234,000)	(198,500)
Profit after tax	208,200	176,350
Other comprehensive income	17,900	10,550
Total comprehensive income	226,100	186,900

Summarised Consolidated Statement of Changes in Equity for the year ended 30 June 2024

	Equity Holders of the Parent (GH¢000)	Non-controlling Interests’ Equity (GH¢000)	Total Equity (GH¢000)
2024
Balances b/d	457,200	65,600	522,800
Total comprehensive income	190,800	35,300	226,100
Dividends	(110,000)	(8,700)	(118,700)
Balances c/d	538,000	92,200	630,200
2023
Balances b/d	355,000	46,650	401,650
Total comprehensive income	160,500	26,400	186,900
Dividends	(58,300)	(7,450)	(65,750)
Balances c/d	457,200	65,600	522,800

Summarised Statement of Financial Position as at 30 June 2024

	2024 (GH¢000)	2023 (GH¢000)
Non-current assets
Property, plant, and equipment	718,000	657,000
Others	156,000	99,000
Total Non-current assets	874,000	756,000
Current assets
Trade receivables	140,000	121,000
Others	236,500	123,050
Total Current assets	376,500	244,050
Total Assets	1,250,500	1,000,050
Total Equity and Liability	1,250,500	1,000,050

Additional information:

The total number of equity shares outstanding was 1.2 million and 1.4 million at 30 June 2023 and 30 June 2024 respectively.
Other comprehensive income attributable to non-controlling interests for the years ended 30 June 2023 and 2024 amounted to GH¢8.05 million and GH¢9.6 million respectively.
Non-current liabilities at 30 June 2023 and 30 June 2024 amounted to GH¢250,800 and GH¢308,510 respectively.
The following metrics have been gleaned from NK’s published sustainability reports across the two years:

Metric	2024	2023
Scope 1 & 2 carbon emissions (tonnes of CO2)	650	780
Scope 3 carbon emissions (tonnes of CO2)	2,400	2,380
Women in senior management (%)	21	16
Total recordable injury frequency rate (TRIFR) per 100 full-time workers	3.3	4.1

The scope and definitions of the above sustainability measures have remained materially unchanged across the two years.

Required:

Compute the following ratios for the years ended 2024 & 2023:

Operating profit margin
Return on parent’s equity
Earnings per share
Current ratio
Trade receivables days
Total liabilities to total assets %

Answer

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Tags: Financial Analysis, Investment Decision, Leverage, Liquidity, Profitability, Ratio Analysis, Working Capital Management
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: Nov 2024

CR – May 2020 – Q5 – Financial Performance and Position of Bossman Ltd

This question involves analyzing the financial performance and position of Bossman Ltd over three years using ratio analysis.

Question

Answer

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Tags: Financial Analysis, Liquidity, Performance Analysis, Profitability, Solvency
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2020

CR – Nov 2020 – L3 – Q5c – Ratios for Lenders

Calculate two ratios of interest to a potential long-term lender for two years.

Question

Calculate, for both years, TWO (2) ratios of interest to a potential long-term lender.

Answer

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Tags: Debt ratio, Financial Analysis, Gearing, Interest Cover
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – Nov 2020 – L3 – Q5a – Return on Equity & Return on Capital Employed

Calculate and interpret return on equity and return on capital employed for Bounce Back Ltd for two years.

Question

Bounce Back Ltd Financial Information:

Statement of Comprehensive Income for the year ended 30 November:

	2019	2018
Profit before interest and tax	GH¢2,200,000	GH¢1,570,000
Interest expense	(GH¢170,000)	(GH¢150,000)
Profit before tax	GH¢2,030,000	GH¢1,420,000
Taxation	(GH¢730,000)	(GH¢520,000)
Profit after tax	GH¢1,300,000	GH¢900,000
Dividends paid	(GH¢250,000)	(GH¢250,000)
Retained profit	GH¢1,050,000	GH¢650,000

Statement of Financial Position as at 30 November:

	2019	2018
Non-current assets (written-down value)	GH¢6,350,000	GH¢5,600,000
Current assets
Trade receivables	GH¢2,100,000	GH¢2,070,000
Inventories	GH¢1,710,000	GH¢1,540,000
Total current assets	GH¢3,810,000	GH¢3,610,000
Creditors: amounts due within one year
Trade payables	GH¢1,040,000	GH¢1,130,000
Taxation	GH¢550,000	GH¢450,000
Bank overdraft	GH¢370,000	GH¢480,000
Total current liabilities	GH¢1,960,000	GH¢2,060,000
Net current assets	GH¢1,850,000	GH¢1,550,000
Total net assets	GH¢8,200,000	GH¢7,150,000
Creditors: amounts due after more than one year
10% debentures	GH¢1,500,000	GH¢1,500,000
Equity
Share capital (ordinary shares of 50p fully paid up)	GH¢3,000,000	GH¢3,000,000
Retained earnings	GH¢3,700,000	GH¢2,650,000
Total equity	GH¢6,700,000	GH¢5,650,000
Total long-term liabilities and equity	GH¢8,200,000	GH¢7,150,000

Required:

Calculate, for both years, the return on equity and the return on capital employed.

Answer

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Tags: Financial Analysis, Profitability Ratios, Return on Capital Employed, Return on Equity
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – Nov 2020 – L3 – Q5b – Investment Ratios

Calculate two investment ratios of interest to a potential investor for two years.

Question

Calculate, for both years, TWO (2) investment ratios of interest to a potential investor.

Answer

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Tags: Dividend Cover, Dividend per share, Earnings Per Share, Financial Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – Nov 2020 – L3 – Q5d – Performance Analysis

Report on the performance and state of the business using calculated ratios from the viewpoint of shareholders and lenders.

Question

Report on the performance and state of the business from the viewpoint of a potential shareholder and lender using the ratios calculated above and explain any weaknesses in these ratios.

Answer

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Tags: Business performance, Financial Performance, Profitability analysis, Ratio Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2020

CR – May 2021 – L3 – Q5 – Financial performance of Shop First Ltd

Analyze the financial performance of Shop First Ltd for 2020 and discuss the effects of discontinued operations and contingencies.

Question

Shop First Ltd operates supermarket chains across the sixteen (16) regions of Ghana. The firm has been in commercial operation for more than two decades, growing its operations through an effective supply chain and financial management. However, in the last few years, keen competition and worsening general economic performance have steadied the consistent growths experienced over the years, resulting in the entity disposing off part of its operations. Below are the financial statements of Shop First Ltd:

Answer

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Tags: Contingencies, Discontinued Operations, Financial Performance, Gearing, Liquidity, Profitability, Ratio Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2021

CR – May 2019 – L3 – Q4 – Analysis and interpretation of financial statements

The question requires calculation of financial ratios and analysis of the financial performance and cash position of Madina Ltd for the year ended 30 September 2018.

Question

Below are the recently issued financial statements of Madina Ltd, a listed company, for the year ended 30 September 2018, together with comparatives for 2017.

Statement of Profit or Loss for the year ended 30 September:

Details	2018 (GH¢’000)	2017 (GH¢’000)
Revenue	125,000	90,000
Cost of Sales	(100,000)	(75,000)
Gross Profit	25,000	15,000
Operating Expenses	(13,000)	(11,000)
Finance Costs	(4,000)	–
Profit before Tax	8,000	4,000
Tax (at 25%)	(2,000)	(1,000)
Profit for the year	6,000	3,000

Statement of Financial Position as at 30 September:

Details	2018 (GH¢’000)	2017 (GH¢’000)
Non-Current Assets
Property, Plant, and Equipment	105,000	45,000
Goodwill	5,000	–
Total Non-Current Assets	110,000	45,000
Current Assets
Inventory	12,500	7,500
Receivables	6,500	4,000
Bank	–	7,000
Total Current Assets	19,000	18,500
Total Assets	129,000	63,500
Equity and Liabilities
Equity
Share Capital	50,000	50,000
Retained Earnings	7,000	6,000
Total Equity	57,000	56,000
Non-Current Liabilities
8% Loan Notes	50,000	–
Current Liabilities
Bank Overdraft	8,500	–
Trade Payables	11,500	6,500
Current Tax Payable	2,000	1,000
Total Current Liabilities	22,000	7,500
Total Equity and Liabilities	129,000	63,500

Additional Information:

On 1 October 2017, Madina Ltd acquired 100% of the net assets of Aboabu Ltd for GH¢50 million. In order to finance this transaction, Madina Ltd issued GH¢50 million 8% loan notes on the acquisition date.
Aboabu Ltd’s results for the year ended 30 September 2018 are shown below:

Aboabu Ltd’s Statement of Profit or Loss for the year ended 30 September:

Details	GH¢’000
Revenue	35,000
Cost of Sales	(20,000)
Gross Profit	15,000
Operating Expenses	(4,000)
Profit before Tax	11,000
Tax (at 25%)	(2,750)
Profit for the year	8,250

Aboabu Ltd has not paid any dividend during the year, but Madina Ltd paid a dividend of GH¢0.05 per share.
The following ratios have been calculated for Madina Ltd for the year ended 30 September 2017:
- Return on capital employed: 7.1%
- Gross profit margin: 16.7%
- Net profit (before tax) margin: 4.4%

Required:

a) Calculate the equivalent ratios for Madina Ltd for 2018:
i) Including the results of Aboabu Ltd acquired during the year. (3 marks)
ii) Excluding all effects of the purchase of Aboabu Ltd. (3 marks)

b) Analyse the performance of Madina Ltd for the year ended 30 September 2018. (5 marks)

c) Analyse the cash position of Madina Ltd as at 30 September 2018. (4 marks)

Answer

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Tags: Cash Flow, Financial Ratios, Profitability, Return on Capital Employed
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2019

CR – May 2018 – L3 – Q4c – Analysis and Interpretation of Financial Statements

Analyze and compare the financial performance of two companies in terms of operating performance, liquidity, gearing, and investment ratios.

Question

Fordland Ltd and Fiatland Ltd are two companies in the garment industry. The following are financial ratios computed by the Research Department of ICAG as part of analyzing companies’ performance industry by industry:

Ratios	Fordland Ltd	Fiatland Ltd
Return on Capital Employed (ROCE)	24.10%	30%
Net Assets Turnover	1.9 times	2.5 times
Gross Profit Margin	35%	20%
Net Profit Margin	10.50%	38%
Current Ratio	1.0:1	2.0:1
Quick Ratio	0.8:1	1.0:1
Inventory Holding Period	60 days	90 days
Receivables Collection Period	58 days	60 days
Payables Payment Period	50 days	50 days
Debt to Equity Ratio	50%	30%
Dividend Yield	3%	2%
Dividend Cover	2 times	1.5 times

Required:
Write a report analyzing and comparing the financial performance of Fordland Ltd and Fiatland Ltd. The report should cover operating performance, liquidity, gearing, and investment ratios. (8 marks)

Answer

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Tags: Financial Performance, Gearing, Investment, Liquidity, Operating performance, Ratio Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2018

CR – April 2022 – L3 – Q5 – Analysis and interpretation of financial statements

Write a report analyzing the financial performance and financial position of Azure Plc using financial ratios and sector averages.

Question

Azure Plc is a company that trades its ordinary shares on the Ghana Stock Exchange. Below are the statements of profit or loss for the year ended 31 December 2020 and for the first three quarters in 2020 published in line with the Ghana Stock Exchange regulations:

Statements of profit or loss of Azure Plc:

Description	Year Ended 31 Dec 2020 (Audited)	Quarter 3 (Unaudited)	Quarter 2 (U naudited)	Quarter 1 (Unaudited)
Revenue	GH¢ 2,829 million	GH¢ 544 million	GH¢ 810 million	GH¢ 624 million
Cost of sales	(GH¢ 1,754 million)	(GH¢ 346 million)	(GH¢ 489 million)	(GH¢ 412 million)
Gross profit	GH¢ 1,075 million	GH¢ 198 million	GH¢ 321 million	GH¢ 212 million
Other operating income	GH¢ 72 million	GH¢ 32 million	GH¢ 21 million	GH¢ 23 million
Administrative expenses	(GH¢ 572 million)	(GH¢ 94 million)	(GH¢ 183 million)	(GH¢ 146 million)
Distribution costs	(GH¢ 265 million)	(GH¢ 73 million)	(GH¢ 62 million)	(GH¢ 65 million)
Finance costs	(GH¢ 15 million)	(GH¢ 11 million)	(GH¢ 2 million)	(GH¢ 2 million)
Profit before tax	GH¢ 295 million	GH¢ 52 million	GH¢ 95 million	GH¢ 22 million
Tax	(GH¢ 101 million)	(GH¢ 17 million)	(GH¢ 31 million)	(GH¢ 11 million)
Profit for the year	GH¢ 194 million	GH¢ 35 million	GH¢ 64 million	GH¢ 11 million

Additional information:
The following ratios have been calculated for the relevant sector for the year ended 31 December 2020:

Return on year-end capital employed: 18.30%
Return on year-end equity: 16.05%
Profit (before interest and tax) margin: 12.1%
Gross profit margin: 43.22%
Current ratio: 2.60
Quick ratio: 1.25
Assets turnover: 1.02
Debt-to-equity ratio: 30.50%

Required:
Write a report to the Board of Directors of Azure Plc, analyzing the financial performance and financial position of the company using the above information to assist the Board in determining whether strategic adjustments are required and where, if any.
(20 marks)

Answer

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Tags: Financial Performance, Gearing, Liquidity, Profitability, Ratio Analysis
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: APR 2022

CR – Nov 2021 – L3 – Q5 – Analysis and Interpretation of Financial Statements

Produce a report analyzing the cash flow performance of Saglema Plc relative to a competitor over two years and explain the uses and limitations of cash flow analysis.

Question

You are the Senior Financial Accountant at Saglema Plc (Saglema), a company that manufactures and sells painting materials in the local market and around the West African sub-region. At the first one-on-one meeting with the recently appointed chairperson of your company’s governing board, she asked you to produce a concise report on Saglema’s cash flow performance relative to that of Adidome Plc (Adidome), a close competitor, over the last two years.

The following are the cash flow statements for the last two years for Saglema and Adidome:

Cash Flow Statements for the Year Ended 31 August 2020 (together with comparatives):

Required:

i) Produce a report showing the comparative analysis of the cash flow performance and situation of Saglema over the last two years, relative to that of Adidome. (15 marks)
ii) Explain TWO (2) uses and THREE (3) limitations of such analysis. (5 marks)

Answer

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Tags: Cash Flow Performance, Cash Flow Statements, Comparative Analysis, Financial Statements, Statement of Cash Flows, Uses and Limitations
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2021

CR – May 2016 – L3 – Q5b – Analysis and interpretation of financial statements

Evaluate significance of various accounting items

Question

Evaluate with examples, the significance of each of the following to an analyst seeking to estimate the effect on future cash flows or liquidity of a company:
i) a commitment and a contingent liability. (2 marks)
ii) income in advance and a deposit (1.5 marks)
iii) an accrual and a provision (1.5 marks)

Answer

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Tags: Cash Flow Analysis, Manipulation of Financial Statements, Performance Evaluation
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2016

CR – May 2016 – L3 – Q5a – Analysis and interpretation of financial statements

Analyze performance and position of a supermarket chain, addressing concerns about potential financial statement manipulationEvaluate significance of various accounting items.

Question

Mion Ltd is a listed company in Ghana and operates many super markets in Ghana. During the year 2014, there was speculation in the financial press that the entity was likely to be a takeover target for larger companies in Ghana. A recent newspaper publication has suggested that the directors are unlikely to resist a takeover. The seven member board are all nearing retirement and all own significant minority shareholdings in the business.

You have been approached by a private shareholder in Mion Ltd. She is concerned that the directors have conflict of interests and that financial statements for 2014 may have been manipulated. The income statement and summarized statement of changes in equity of Mion together with comparatives for the year ended 31st December 2014 and a statement of financial position as at that date are given below:

INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2014

The following additional information is relevant:

i) Non-current asset turnover (including both tangible and intangible non-current asset): 1.93 ii) Mion Ltd’s directors have undertaken a reassessment of useful lives of non-current tangible assets during the year. In most cases they estimate that the useful lives have increased and the depreciation charges in 2014 have been adjusted accordingly. iii) Six new stores have been opened during 2014, bringing the total to 42. iv) Three key ratios for the supermarket sector (based on the latest available financial statement of 12 listed entities in the sector) are as follows:

Annual sales per store: GH¢27.6m
Gross Profit margin: 5.9%
Net profit margin: 3.9%

Required:
Prepare a report and address to the investor, analyzing the performance and position of Mion Ltd based on the financial statements and supplementary information provided above. The report should also include comparisons with key sector ratios, and it should address the investor’s concerns about the possible manipulation of the 2014 financial statements. (15 marks)

Answer

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Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAY 2016

CR – Nov 2023 – L3 – Q5 – Analysis and interpretation of financial statements

Analyze and compare the financial performance and position of two companies, Abodam Plc and Bossu Plc, using various financial ratios and metrics.

Question

You are a financial consultant of Synel Investments (SI). The Directors of SI have tasked you to evaluate the financial health of two wholesaling companies – Abodam Plc (Abodam) and Bossu Plc (Bossu) – to help them decide which entity to invest in. Assume that all other factors of the two companies have been considered except their current period’s relative financial performance and position. The financial statements of Abodam and Bossu for the year ended 31 December 2022 are provided below:

Additional information:

The Directors of Bossu announced at the beginning of the current period to repurchase 20% of the company’s issued shares in equal proportion over a three-year period. The purchase of the first tranche is expected to occur around February 2023. At the start of second quarter this year, the major commercial lender of Abodam triggered its covenant modification right to include stricter profit-based clauses in the loan agreement.

During the year, Abodam and Bossu paid ordinary dividends of GH¢450,000 and GH¢315,000 respectively.
Average borrowing rate for the two companies has remained 11% during the period.

Required:

a) Compute the following additional ratios for the two companies:

i) Return on year-end equity

ii) Return on year-end capital employed (where capital employed equals total assets less current liabilities)

iii) Trade receivables days

iv) Debt-to-equity

(8 marks)

b) Write a report to the board of SI to evaluate the relative financial performance and position of Abodam and Bossu, based on the following headings:

i) Profitability

ii) Working capital management

iii) Gearing

iv) Earnings per share

v) Bossu’s repurchase plan vi) Abodam’s loan covenant

(12 marks)

(Total: 20 marks)

Answer

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Tags: Earnings Per Share, Financial Statement Analysis, Gearing, Loan Covenants, Profitability, Ratio Analysis, Share repurchase, Working Capital Management
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2023

CR – Mar 2024 – Q5 – Analysis and interpretation of financial statements

Analyze and compare cash flow statements of two companies to recommend an investment choice between them.

Question

You are the Financial Consultant of Nkoso Funds, a pension fund in Ghana. Your company has identified two companies which you have been asked to evaluate as possible investments. The two companies, Trokaa Plc (Trokaa Plc) and Krokro Plc (Krokro Plc), are both publicly held and similar in size. Assume that all other publicly available information, including all climate, sustainability, and governance disclosures, have already been analysed and the decision concerning which company’s shares to acquire depends on their cash flow data given below:

Statement of cash flows for the years ended December 31, 2023 and 2022 Trokaa Plc Krokro Plc

Required:
a) Conduct a horizontal analysis for each of the two companies. (6 marks)

b) Write a report to the investment manager of Nkoso Funds discussing the relative strengths and weaknesses of each of the two companies. Conclude your report by recommending one company’s share as an investment avenue. (14 marks)

Answer

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Tags: Cash Flow Analysis, Financial Statement Interpretation, Horizontal Analysis, Investment Decision
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: MAR 2024

CR – Aug 2022 – L3 – Q5 – Analysis and interpretation of financial statements

This question requires writing a report that assesses the comparative performance of a company using various financial ratios (profitability, liquidity, efficiency, and gearing).

Question

Wadie Ltd has been in operation for the past ten years. The company started operations in Kumasi with just three employees, but currently operates in all regions of Ghana, with over five hundred employees.

The final meeting for the year of the Board of Directors of the company is to be convened, and as a tradition, the Finance Manager presented an analysis of the financial performance of the company for the financial year ended 31 December 2021. Below are the financial statements for the year ended 31 December 2021:

Statement of Comprehensive Income for the year 31 December

Additional Information:

i) Finance income relates to interest earned on the company’s investment in Government of Ghana loan notes.

ii) Dividend payable represents the dividend declared or approved by shareholders at the last Annual General Meeting.

Required:

As the Finance Manager of the company, write a report to the Board of Directors, assessing the comparative performance of the company for the year ended 31 December 2021. Your report should use THREE (3) profitability ratios, TWO (2) liquidity ratios, THREE (3) efficiency ratios, and TWO (2) gearing ratios.

Answer

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Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: AUG 2022

CR – Nov 2019 – L3 – Q5 – Analysis and Interpretation of Financial Statements

Analyze the financial performance of Pep Ltd over the past three years and recommend areas for further investigation.

Question

You are the Financial Controller of Oxtom Ltd. Pep Ltd is a competitor in the same industry and has been operating for 20 years. Summaries of Pep Ltd’s Statements of Profit or Loss and Financial Position for the previous three years are given below:

Pep Ltd – Summarised Statement of Profit or Loss for the year ended 31 December

Item	2016 (GH¢’m)	2017 (GH¢’m)	2018 (GH¢’m)
Revenue	840	981	913
Cost of sales	(554)	(645)	(590)
Gross profit	286	336	323
Selling, distribution, and admin expenses	(186)	(214)	(219)
Profit before interest and taxes	100	122	104
Finance cost	(6)	(15)	(19)
Profit before taxation	94	107	85
Taxation	(45)	(52)	(45)
Profit after taxation	49	55	40
Dividends	24	24	24

Pep Ltd – Summarised Statement of Financial Position as at 31 December

Item	2016 (GH¢’m)	2017 (GH¢’m)	2018 (GH¢’m)
Assets
Non-current assets
Intangible assets	36	40	48
Tangible assets (net)	176	206	216
Total non-current assets	212	246	264
Current assets
Inventories	237	303	294
Receivables	105	141	160
Bank	52	58	52
Total current assets	394	502	506
Total assets	606	748	770

Equity and Liabilities	2016 (GH¢’m)	2017 (GH¢’m)	2018 (GH¢’m)
Equity
Stated capital	100	100	100
Retained earnings	299	330	346
Total equity	399	430	446
Non-current liabilities
Long-term loans	74	138	138
Current liabilities
Trade payables	53	75	75
Other payables	80	105	111
Total equity and liabilities	606	748	770

Required:
a) Write a report to the Chief Executive Officer of Oxtom Ltd analyzing the performance of Pep Ltd, showing any calculations in an appendix to the report. (14 marks)
b) Summarize THREE (3) areas which require further investigation, including reference to other pieces of information that would complement your analysis of Pep Ltd’s performance. (6 marks)

Answer

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Tags: Financial Ratios, Performance Analysis, Statement of Financial Position, Statement of Profit or Loss
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2019

CR – Nov 2016 – L3 – Q4b – Analysis and interpretation of financial statements

Write a report comparing Decimal Ltd’s financial performance with industry averages in terms of profitability, liquidity, efficiency, and shareholders’ investment.

Question

Below are the financial ratios for the year 2015 for Decimal Ltd, a company engaged in the buying and shipment of agricultural products. The ratios for the industry have also been provided.

Ratios	Decimal Ltd	Industry Average
Quick ratio	0.52:1	0.84:1
Current ratio	1.20:1	1.80:1
Debtors collection period	46 days	41 days
Creditors payment period	70 days	50 days
Inventory holding period	58 days	48 days
Dividend yield	3.6%	9.0%
Debt to equity	85%	45%
Dividend cover	1.4 times	3.4 times
Gross profit margin	18%	28%
Net profit margin	8%	12.8%
Return on capital employed	28%	14%
Net assets turnover	4.2 times	1.9 times

Required:
Write a report to the Shareholders of Decimal Ltd assessing its performance in comparison with the industry in respect of profitability, liquidity, efficiency, and shareholders’ investment.
(10 marks)

Answer

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Tags: Efficiency, Financial Performance, Liquidity, Profitability, Ratio Analysis, Shareholder Investment
Level: Level 3

Topic: Analysis and Interpretation of Financial Statements
Series: NOV 2016

CR – Nov 2016 – L3 – Q4a – Analysis and interpretation of financial statements

Describe two uses of accounting ratios and explain three limitations of their use in appraising financial performance.

Question

It has been suggested that ratio analysis is not necessarily the best way of assessing a company’s performance.

Required:
i) Describe two uses of accounting ratios other than performance assessment. (2 marks)
ii) Explain three limitations of the use of accounting ratios in the appraisal of financial performance. (3 marks)

Answer

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Tags: Financial Performance, Limitations, Ratio Analysis
Level: Level 3