Topic: Financial Statement Analysis

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FR – Nov 2024 – L2 – Q4b – Financial Performance Assessment of Acquisition Targets

Assessment of financial performance and position of Suah LTD and Nagbe LTD to assist Dukuly LTD in an acquisition decision.

Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, both operating in the same industry.

The financial statements of Suah LTD and Nagbe LTD for the year ended 30 September 2024 have been provided, along with a set of financial ratios calculated for Suah LTD.

Required:
Using the calculated ratios for Nagbe LTD from Question 4a, assess the relative financial performance and financial position of Suah LTD and Nagbe LTD, to assist the directors of Dukuly LTD in making an acquisition decision.

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FR – Nov 2024 – L2 – Q4a – Financial Ratios and Performance Evaluation

Calculation of key financial ratios for Nagbe LTD to compare with Suah LTD and evaluate financial performance.

Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, which operate in the same industry. The indicative price for acquiring either entity is GH¢12 million.

The financial statements for Suah LTD and Nagbe LTD are provided as follows:

Statement of Profit or Loss for the year ended 30 September 2024

Item Suah LTD (GH¢’000) Nagbe LTD (GH¢’000)
Revenue 25,000 40,000
Cost of Sales (19,000) (32,800)
Gross Profit 6,000 7,200
Distribution & Admin Expenses (1,250) (2,300)
Finance Costs (250) (900)
Profit Before Tax 4,500 4,000
Income Tax Expense (900) (1,000)
Profit for the Year 3,600 3,000

Statement of Financial Position as at 30 September 2024

Item Suah LTD (GH¢’000) Nagbe LTD (GH¢’000)
Non-Current Assets 4,800 10,300
Current Assets 4,800 8,700
Total Assets 9,600 19,000
Equity 2,600 5,600
Non-Current Liabilities 5,000 9,200
Current Liabilities 2,000 4,200
Total Equity & Liabilities 9,600 19,000

Additional Information:

  1. Carrying Amount of Plant Assets:

    • Suah LTD: GH¢4,800,000
    • Nagbe LTD: GH¢2,000,000
  2. The following ratios for Suah LTD are provided:

    Ratio Suah LTD
    Return on Capital Employed (ROCE) 62.5%
    Net Asset Turnover 3.3 times
    Gross Profit Margin 24.0%
    Profit Margin (Before Interest & Tax) 19.0%
    Current Ratio 2.4:1
    Inventory Holding Period 31 days
    Trade Receivables Collection Period 31 days
    Trade Payables Payment Period 24 days
    Gearing Ratio 65.80%
    Acid Test Ratio 1.6:1

Required:
Using the financial statements provided, calculate the corresponding ratios for Nagbe LTD to compare with Suah LTD.

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FR – May 2020 – L2 – Q4a – Financial Ratios Calculation

Calculate the financial ratios of Adenta Ltd for the year ended 31 December 2018 based on its financial statements.

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FR – May 2020 – L2 – Q4b – Financial Performance Analysis

Write a report analyzing Adenta Ltd's financial performance in comparison to industry averages for 2018.

As the Financial Controller of Adenta Ltd, write a report to the Board of Directors analyzing the financial performance of Adenta Ltd based on a comparison with the industry averages. (10 marks)

 

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FR – Dec 2022 – L2 – Q4 – Financial Analysis & Ratios

Analyze and compare Madina Ltd.’s performance using key financial ratios for the years 2020 and 2021, including comparisons with industry standards.

Madina Ltd is engaged in the processing of palm fruits to produce palm oil and palm kernel oil. The financial statements of the company for the years ended 31st December 2020 and 2021 are as follows:

Statement of Profit or Loss for the year ended

Description 2021 (GH¢’000) 2020 (GH¢’000)
Revenue 123,817 95,620
Cost of sales (84,940) (76,240)
Net gains from changes in fair value of biological assets 84 754
Gross profit 38,961 20,134
Administrative expenses (11,727) (8,494)
Other income 1,267 927
Operating profit 28,501 12,567
Finance income 888 508
Profit before income tax 29,389 13,075
Income tax expense (4,692) (3,422)
Profit for the year 24,697 9,653

Statement of Financial Position as at:

Description 2021 (GH¢’000) 2020 (GH¢’000)
Non-current assets
Property, Plant & Equipment 57,909 49,471
Financial assets 5,221 5,137
Current assets
Inventories 8,490 9,370
Trade Receivables 24,663 18,304
Cash and cash equivalents 22,832 10,618
Total Assets 119,115 92,900

The following ratios have been gathered from the food and processing industry for the year ended 31 December 2021:

  • Return on Equity (%) 23.52
  • Gross Profit Margin (%) 29.57
  • Net Profit Margin (%) 22.16
  • Current Ratio (times) 2.5
  • Acid Test Ratio (times) 1.8
  • Inventory Turnover (days) 20
  • Trade Receivables Collection (days) 68
  • Trade Payables Settlement (days) 32

Required:
Write a report to the Board of Directors of Madina Ltd, assessing the company’s performance for the year ended 31 December 2021 in relation to the industry and the comparative year.

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FR – MAY 2021 – L2 – Q4a – Performance Analysis

Analyze Zeus Ltd's performance and position from 2018 to 2020, including calculations.

You are the Financial Controller of Konka Ltd. Zeus Ltd is a competitor in the same industry, and it has been operating for 20 years. Summaries of Zeus Ltd’s statements of profit or loss and financial position for the previous three years are given below.

Summarised Statement of Profit or Loss For the year ended 31 December

2018 2019 2020
Revenue 840 981 913
Cost of sales (554) (645) (590)
Gross profit 286 336 323
Administration and selling 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

Summarised Statement of Financial Position as at 31 December

2018 2019 2020
Assets
Non-current assets
Intangible assets 36 40 48
Tangible assets at net book value 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
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 Current Liabilities 133 180 186
Total Equity and Liabilities 606 748 770

Required:
a) Analyzing the performance and position of Zeus Ltd and showing any calculations in an appendix to this report.
(15 marks)

 

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FR – MAY 2021 – L2 – Q4b – Areas Requiring Further Investigation

Identify five areas needing further investigation regarding Zeus Ltd's performance.

Summarising FIVE (5) areas that require further investigation, including reference to other pieces of information which would complement your analysis of the performance of Zeus Ltd.

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FR – March 2023 – L2 – Q4 – Financial Statement Analysis

Analyze and compare the financial performance of Boomu Ltd and Sintim Ltd using profitability, liquidity, efficiency, and gearing ratios.

Boomu Ltd is an agro-processing company with strong competition from Sintim Ltd. The Board of Directors of Boomu Ltd wants to measure the performance of the company against its competitor. Below are the statement of comprehensive income of the two companies for the year ended 31 December 2021, and the statement of financial positions as at that date.

Statement of Comprehensive Income:

Boomu Ltd (GH¢000) Sintim Ltd (GH¢000)
Revenue 619,085 956,200
Cost of Sales (424,700) (762,400)
Gross Profit 194,385 193,800
Administrative Expenses (58,635) (84,940)
Other Income 6,335 9,270
Operating Profit 142,085 118,130
Finance Cost (3,000)
Profit Before Income Tax 142,085 115,130
Income Tax Expense (23,460) (34,220)
Profit for the Year 118,625 80,910

Statement of Financial Position:

Boomu Ltd (GH¢000) Sintim Ltd (GH¢000)
Non-Current Assets
Property, Plant & Equipment 231,636 197,884
Intangible Assets 105,320 111,928
Total Non-Current Assets 336,956 309,812
Current Assets
Inventories 33,960 37,480
Trade Receivables 26,216 3,836
Cash and Cash Equivalents 91,328 42,472
Total Current Assets 151,504 83,788
Total Assets 488,460 393,600

Equity & Liabilities:

Boomu Ltd (GH¢000) Sintim Ltd (GH¢000)
Equity
Share Capital 20,000 30,000
Retained Earnings 390,536 283,820
Total Equity 410,536 313,820
Non-Current Liabilities
Deferred Taxation 18,120 13,948
20% Loan Notes 30,000
Total Non-Current Liabilities 18,120 43,948
Current Liabilities
Trade and Other Payables 42,904 28,040
Current Tax 16,900 7,792
Total Current Liabilities 59,804 35,832
Total Equity & Liabilities 488,460 393,600

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 using THREE (3) profitability ratios, TWO (2) liquidity ratios, THREE (3) efficiency ratios, and TWO (2) gearing ratios.

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FR – April 2022 – L2 – Q4 – Financial Statement Analysis

Analyze the performance and position of Abayie Ltd based on its financial statements, comparing it with key sector ratios, and prepare a report for shareholders.

Abayie Ltd is a listed company in Ghana and operates many supermarkets in Ghana. The following statements relate to Abayie Ltd for the year 2020:

Statement of Profit or Loss for the year ended 31 December 2020




Additional Information:
Key ratios for the supermarket sector (based on the latest available financial statement of 12 listed entities in the sector) are as follows:

  • Gross Profit margin: 5.9%
  • Return on Capital Employed (ROCE): 3.9%
  • Net Assets Turnover: 1.93 times

Required:
Prepare a report addressed to the shareholders of Abayie Ltd, analyzing the performance and position of Abayie Ltd based on the financial statements and additional information provided. The report should also include comparisons with key sector ratios (where appropriate). (Total: 20 marks)

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FR – Nov 2023 – L2 – Q4a – Financial Statement Analysis

Calculate key financial ratios for Addin Petroleum and Gyan Petroleum to assess their performance for acquisition purposes.

You are the Chief Finance Officer of LizOil Co. Ltd, a holding company with subsidiaries that have diversified interests. The company’s Board of Directors are interested in acquiring a new subsidiary in the Downstream Petroleum Sector. Two companies have been identified as potentials for the acquisitions: Addin Petroleum and Gyan Petroleum. The following are the summaries of their respective financial statements:

Statement of Profit or Loss for the year ended 30 September 2022

Statement of Financial Position as at 30 September 2022

Required:
a) Calculate the following ratios for each of the two companies: i) Net profit margin ii) Return on year-end capital employed iii) Quick ratio iv) Trade receivables’ collection period (in days) v) Gearing (debt over debt plus equity) vi) Interest cover (9 marks)

b) Write a report to the Chairperson of the board based on a comparable analysis of performance of both companies using the ratios computed in (a) above. (9 marks)
c) State TWO (2) limitations of ratios. (2 marks)

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FR – Nov 2023 – L2 – Q4b – Financial Statement Analysis

Write a report analyzing the performance of two companies, Addin Petroleum and Gyan Petroleum, using key financial ratios.

Write a report to the Chairperson of the board based on a comparative analysis of the performance of both companies using the ratios computed in (a) above.

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FR – May 2017 – L2 – Q4b – Financial Statement Analysis

Write a report analyzing the performance of Shine Ltd compared to Diamond Ltd and the industry averages based on profitability, liquidity, gearing, and efficiency.

As the Financial Controller of Shine Ltd, write a report to the Managing Director analyzing the performance of your company, comparing the results against that of Diamond Ltd (a key competitor) and against the industry average using the following measures:

  • Profitability
  • Liquidity
  • Gearing
  • Efficiency

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FR – May 2017 – L2 – Q4a – Financial Statement Analysis

Calculate comparable financial ratios for Diamond Ltd and Shine Ltd based on profitability, liquidity, gearing, and efficiency.

The following information has been extracted from the recently published accounts of Diamond Ltd and Shine Ltd.

Statement of Profit or Loss for the year ended 31 December 2016

The following are the latest industry average ratios:
Required:
Calculate comparable ratios (to two decimal places where appropriate) for the two companies. All calculations must be clearly shown.

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FR – Nov 2021 – L2 – Q4 -Financial Statement Analysis

Analysis of financial ratios and performance of Bebebe Ltd for 2019 and 2020.

The following are the accounts of Bebebe Ltd (Bebebe), a company that manufactures playground equipment for the year ended 30 November 2020.

Statement of Comprehensive Income for the year ended 30 November:

Required:

a) Calculate, for both years, the return on equity and the return on capital employed. (4 marks)

b) Calculate, for both years, TWO (2) investment ratios to a potential investor. (4 marks)

c) Calculate, for both years, TWO (2) ratios of interest to a potential long-term lender. (4 marks)

d) Comment on the performance of Bebebe to a potential shareholder and lender using the ratios calculated above. (5 marks)

e) Explain THREE (3) weaknesses in these ratios.

(3 marks)

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FR – May 2016 – L2 – Q4 – Financial Statement Analysis

Prepare a report for the managing director of ANN Co. on IB Co's financial position, focusing on gearing and liquidity ratios.

ANN Co is considering acquiring an interest in its competitor IB Co Ltd. The managing director of ANN Co has obtained the three most recent statements of financial position of IB Co Ltd as shown below:

IB Co Ltd – Statement of Financial Position as at 31st December:

2013 2014 2015
Non-current assets
Land and buildings 11,460 12,121 11,081
Plant and equipment 8,896 9,020 9,130
Total non-current assets 20,356 21,141 20,211
Current assets
Inventories 1,775 2,663 3,995
Trade receivables 1,440 2,260 3,164
Cash 50 53 55
Total current assets 3,265 4,976 7,214
Total assets 23,621 26,117 27,425
Equity
Share capital 8,000 8,000 8,000
Retained earnings 6,434 7,313 7,584
Total equity 14,434 15,313 15,584
Non-current liabilities
12% debentures (2015-2018) 5,000 5,000 5,000
Current liabilities
Trade payables 390 388 446
Bank 1,300 2,300 3,400
Income taxes payable 897 1,420 1,195
Dividend payable 1,600 1,696 1,800
Total current liabilities 4,187 5,804 6,841
Total equity and liabilities 23,621 26,117 27,425

Required:
Prepare a report for the managing director of ANN Co, commenting on the financial position of IB Co Ltd and highlighting any areas that require further investigation (using gearing and liquidity ratios only).

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FR – March 2024 – L2 – Q4a – Financial Statement Analysis

Calculate financial ratios for Mantemante Ltd and compare them with industry averages.

The following information has been extracted from the Financial Statements of Mantemante Ltd.

Statement of Financial Position as at 31 December 2023

Additional information, including ratios such as Return on Capital Employed, Net Profit Margin, Asset Turnover, Gearing, etc., is also provided.

Required:
a) Compute the comparable ratios for Mantemante Ltd for the years 2022 and 2023.
(10 marks)
b) Write a report for the Board of Directors analyzing the performance of Mantemante Ltd with references to the ratios for the two years and industry averages.
(10 marks)

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FR – Nov 2016 – L2 – Q4b – Financial Statement Analysis

Calculate and explain the non-current asset turnover ratio for Ashtown Ltd and compare it with Krofrom Ltd.

Krofrom Ltd is also a listed company operating in the manufacturing sector in Ghana. The non-current asset turnover ratio of Krofrom Ltd for the year 2015 is 1.3.

Required:
Compute the non-current asset turnover ratio for Ashtown Ltd and explain TWO reasons why these ratios may not provide a good comparison of the efficiency of the entities.

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FR – Nov 2016 – L2 – Q4a – Financial Statement Analysis

Analyze the financial performance and financial position of Ashtown Ltd based on industry ratios for the years 2014 and 2015.

You are a private consultant for Ashtown Ltd, a listed company in Ghana operating in the manufacturing sector. Below is a Statement of Financial Position and a summarized statement of changes in equity with comparatives for the year ended 31 December 2015.

Statement of Financial Position as at 31 December 2015:

Required:
Prepare a report and address it to the Chief Executive Officer, analyzing the financial performance and financial position of Ashtown Ltd based on the industry ratios above for the years 2014 and 2015.

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FR – Nov 2016 – L2 – Q2d – Financial Statement Analysis

Discuss the effects of two events on the financial statements in accordance with IAS 10 Events after the Reporting Period.

Suame Ltd is a listed telecommunication company which prepares its financial statements for the year ended 31 October 2015 in accordance with IFRS. The financial statements are due to be authorised for issue on 15 January 2016.

  • i) Suame Ltd holds an investment in the shares of a listed company, Asafo Ltd. During November 2015 there was a material fall in the value of Asafo Ltd’s shares. Analysts attribute the fall in value principally to a fraud dating back to December 2014 that was discovered by Asafo Ltd’s management and announced publicly in November 2015.
  • ii) In December 2015, the directors of Suame Ltd publicly announced a plan to reduce the workforce by 10% as a result of worsening economic conditions.

Required:
Discuss the effects of each of the above items on the financial statements of Suame Ltd for the year ended 31 October 2015 in accordance with IAS 10 Events after the Reporting Period.

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FR – May 2018 – L2 – Q4 – Financial Statement Analysis

Calculate financial ratios for Obiya Ltd based on its financial statements for the year ended 30 September 2017.

Obiya Ltd assembles computer equipment from bought-in components and distributes them to various wholesalers and retailers. It has recently subscribed to an inter-firm comparison service. Members submit accounting ratios as specified by the operator of the service, and in return, members receive the average figures for each of the specified ratios taken from all of the companies in the same sector that subscribe to the service. The specified ratios and the average figures for Obiya’s sector are shown below:

Ratios of sector companies for the period to 30 September 2017

Ratio Sector Average
Return on capital employed 22.1%
Net asset turnover 1.8 times
Gross profit margin 30%
Net profit (before tax) margin 12.50%
Current ratio 1.6:1
Quick ratio 0.9:1
Inventory holding period 46 days
Accounts receivable collection period 45 days
Accounts payable payment period 55 days
Debt to equity 40%
Dividend yield 6%
Dividend cover 3 times

Obiya Ltd’s financial statements for the year to 30 September 2017 are set out below:

Statement of profit or loss for the year ended 30 September 2017

Description GH¢’000
Revenue 2,425
Cost of sales (1,870)
Gross profit 555
Other operating expenses (215)
Operating profit 340
Finance costs (34)
Exceptional item (note ii) (120)
Profit before tax 186
Income tax (90)
Profit for the period 96

Statement of changes in equity (extract)
For the year ended 30 September 2017

Description GH¢’000
Retained earnings – 1 October 2016 179
Net profit for the period 96
Dividends paid (Interim GH¢60,000; final GH¢30,000) (90)
Retained earnings – 30 September 2017 185

Statement of financial position as at 30 September 2017

Description GH¢’000
Non-current assets
Property, plant, equipment 540
Current assets
Inventory 275
Accounts receivable 320
Bank
Total current assets 595
Total assets 1,135
Equity
Ordinary shares (25 pesewas each) 150
Retained earnings 185
Total equity 335
Non-current liabilities
8% loan notes 300
Current liabilities
Bank overdraft 65
Trade accounts payable 350
Taxation 85
Total current liabilities 500
Total equity and liabilities 1,135

Notes:

i) The details of the non-current assets are:

Description Cost (GH¢’000) Accumulated depreciation (GH¢’000) Net book value (GH¢’000)
At 30 September 2017 3,600 3,060 540

ii) The exceptional item relates to losses on the sale of a batch of computers that had become worthless due to improvements in microchip design.

iii) The market price of Obiya’s shares throughout the year averaged GH¢6.00 each.

Required:
a) Calculate the ratios for Obiya equivalent to those provided by the inter-firm comparison service.

(5 marks)

b) Write a report analyzing the operational performance, gearing, investment, and liquidity of Obiya Ltd based on a comparison with the sector averages. (10 marks)

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