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.

Question

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.

Answer

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Tags: Financial Position, Gearing, Investment Decision, Liquidity, Performance Evaluation, Profitability, Ratio Analysis
Level: Level 2

Topic: Financial Statement Analysis
Series: Nov 2024

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.

Question

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:

Carrying Amount of Plant Assets:
- Suah LTD: GH¢4,800,000
- Nagbe LTD: GH¢2,000,000

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.

Answer

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Tags: Efficiency, Financial Statement Interpretation, Gearing, Investment Decision, Liquidity, Profitability, Ratio Analysis
Level: Level 2

Topic: Financial Statement Analysis
Series: Nov 2024

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.

Question

Answer

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Tags: Financial Performance, Gearing, Liquidity, Profitability, Ratios
Level: Level 2

Topic: Financial Statement Analysis
Series: MAY 2020

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

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

Question

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)

Answer

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Tags: Gearing, Liquidity, Performance Evaluation, Profitability, Ratio Analysis
Level: Level 2

Topic: Financial Statement Analysis
Series: MAY 2020

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.

Question

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.

Answer

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Level: Level 2

Topic: Financial Statement Analysis
Series: DEC 2022

FR – MAY 2021 – L2 – Q4a – Performance Analysis

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

Question

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)

Answer

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Tags: Liquidity, Operating Efficiency, Performance Analysis, Profitability, Solvency
Level: Level 2

Topic: Financial Statement Analysis
Series: MAY 2021

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

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

Question

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.

Answer

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Tags: Accounting Policies, Corporate Governance, Financial Reporting, Investigation, Performance Analysis
Level: Level 2

Topic: Financial Statement Analysis
Series: MAY 2021

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.

Question

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.

Answer

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Tags: Competitor Comparison, Efficiency, Financial Performance, Gearing, Liquidity, Profitability, Ratio Analysis
Level: Level 2

Topic: Financial Statement Analysis
Series: MAR 2023

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.

Question

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)

Answer

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Level: Level 2

Topic: Financial Statement Analysis
Series: APR 2022

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.

Question

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)

Answer

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Tags: Acquisition, Financial Ratios, Liquidity Ratios, Profitability Ratios
Level: Level 2

Topic: Financial Statement Analysis, Ratio Analysis
Series: NOV 2023

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

Assess the financial performance and position of Light Ltd and Favour Ltd for acquisition purposes based on profitability, liquidity, and gearing ratios.

Question

Salt Ltd is a Government Business Entity that would like to acquire 100% of a viable private company. It has obtained the following draft financial statements for two companies, Light Ltd and Favour Ltd. They operate in the same industry, and their managements have indicated they would be receptive to a takeover.

Statement of Profit or Loss for the year ended 31 December 2017:

Description	Light Ltd (GH¢’000)	Favour Ltd (GH¢’000)
Revenue	12,000	20,500
Cost of sales	(10,500)	(18,000)
Gross profit	1,500	2,500
Operating expenses	(240)	(500)
Finance costs	(210)	(600)
Profit before tax	1,050	1,400
Income tax expense	(150)	(400)
Profit for the year	900	1,000
Dividends paid	250	700

Statements of Financial Position as at 31 December 2017:

Description	Light Ltd (GH¢’000)	Favour Ltd (GH¢’000)
Assets
Non-current assets:
Freehold factory	4,400	–
Owned plant	5,000	2,200
Leased plant	–	5,300
Total non-current assets	9,400	7,500
Current assets:
Inventory	2,000	3,600
Trade receivables	2,400	3,700
Bank	600	–
Total current assets	5,000	7,300
Total assets	14,400	14,800
Equity and Liabilities
Equity shares of GH¢1 each	2,000	2,000
Property revaluation reserve	900	–
Retained earnings	2,600	800
Total equity	5,500	2,800
Non-current liabilities
Finance lease obligations	–	3,200
7% loan notes	3,000	–
10% loan notes	–	3,000
Deferred tax	600	100
Government grants	1,200	–
Total non-current liabilities	4,800	6,300
Current liabilities
Bank overdraft	–	1,200
Trade payables	3,100	3,800
Government grants	400	–
Finance lease obligations	–	500
Taxation	600	200
Total current liabilities	4,100	5,700
Total equity and liabilities	14,400	14,800

Notes:

i. Both companies operate from the same premises.
ii. Additional details of the two companies’ plant are:

Description	Light Ltd (GH¢’000)	Favour Ltd (GH¢’000)
Owned plant – Historical cost	8,000	10,000
Leased plant – Original fair value	–	7,500

There were no disposals of plant during the year by either company.

iii. The interest rate implicit within Favour Ltd’s finance leases is 7.5% per annum. For the purpose of calculating ROCE and gearing, all finance lease obligations are treated as long-term interest-bearing borrowings.

Required:
Assess the relative financial performance and financial position of Light Ltd and Favour Ltd for the year ended 31 December 2017 to inform the directors of Salt Ltd in their acquisition decision. Your analysis should focus on profitability, liquidity, and gearing.
(15 marks)

Answer

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Level: Level 2, Level 3

Topic: Financial Statement Analysis
Series: NOV 2018

FR – Nov 2018 – L2 – Q3b – Financial Statement Analysis

Explanation of four benefits of cash flow information to users of financial statements.

Question

An entity shall prepare a statement of cash flows in accordance with the requirements of IAS 7: Statement of Cash Flows and shall present it as an integral part of its financial statements for each period for which financial statements are presented.

Required:
Explain FOUR (4) benefits of cash flow information to users of financial statements.
(4 marks)

Answer

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Level: Level 2

Topic: Financial Statement Analysis
Series: NOV 2018

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

Calculate various financial ratios for Pat Plc and compare them to industry averages and Write a report to assess the financial performance and position of Pat Plc relative to industry standards based on the calculated ratios.

Question

Pat Plc is a listed Ghanaian company that produces textile prints for local and African markets. During the year ended 31 March 2022, the following financial information was available:

Gross profit: GH¢12,150
Cost of sales: GH¢77,850
Operating profit before interest and tax: GH¢7,130
Finance cost: GH¢920
Tax charged to profit or loss: GH¢1,400
Inventory turnover: 3.6 times
Dividend per share: GH¢0.36
Dividend yield: 6%

Extracts from the Statement of Financial Position as at 31 March 2022:

Required:
a. Based on the information provided, compute the following ratios for Pat Plc:
i) Profit (after tax) margin
ii) Current ratio
iii) Return on Capital Employed (ROCE)
iv) Receivables period
v) Price/Earnings ratio
vi) Debt/Equity ratio

b. Using the ratios computed in Question 4a, write a report to the Board of Directors of Pat Plc assessing the financial performance and financial position of the entity, relative to its industry.

Answer

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Level: Level 2

Topic: Financial Statement Analysis
Series: AUG 2022

FR – May 2019 – L2 – Q4a – Financial Statement Analysis

Calculation of various financial ratios based on the financial statements of Zangi Ltd for 2017 and 2018.

Question

Zangi Ltd is a private company in Ghana, and extracts from its most recent financial statements are provided below:

Statement of profit or loss for the year ended 31 March:

Required:

a) Calculate the following ratios using the information in the financial statements above:

i) Operating profit margin
ii) Gross profit margin
iii) Return on assets employed
iv) Debt to equity
v) Interest cover
vi) Current ratio
vii) Quick ratio

b) Comment on the profitability, liquidity, and gearing of the company for the two-year periods based on the ratios computed above and advice management where appropriate.

Answer

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Tags: Gearing Ratios, Liquidity Ratios, Profitability Ratios, Ratio Analysis
Level: Level 3

Topic: Financial Statement Analysis
Series: MAY 2019

FR – Nov 2015 – L2 – Q3 – Preparation of Financial Statements, Financial Statement Analysis

This question requires preparing a cash flow statement for CL Ltd using IAS 7 and calculating the gross profit margin based on changes in purchase and selling prices.

Question

(a) CL Ltd is a wholesaler and retailer of office furniture. Extracts from the company’s financial statements are set out below:

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED:

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2015:

Description	Stated Capital	Capital Surplus	Income Surplus	Total
Balances b/f	8,500	2,500	15,800	26,800
Share issue	12,900	–	–	12,900
Comprehensive income	–	5,000	7,000	12,000
Dividends paid	–	–	(4,000)	(4,000)
Balances c/f	21,400	7,500	18,800	47,700

STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH:

Note:
Non-current assets
During the year, the company redesigned its display areas in all of its outlets. The previous displays had cost GHS10 million and had been written down by GHS9 million. There was an unexpected cost of GHS500,000 for the removal and disposal of the old display areas. Also, during the year, the company revalued the carrying amount of its property upwards by GHS5 million, and the accumulated depreciation on these properties of GHS2 million was reset to zero.
All depreciation is charged to operating expenses.

Required:
Prepare a statement of cash flows for CL Ltd for the year ended 31 March 2015 in accordance with IAS 7 – Statement of Cash Flows. (15 marks)

(b) The directors of CL Ltd are concerned at the deterioration in its bank balance and are surprised that the amount of gross profit has not increased for the year ended 31 March 2015. At the beginning of the current accounting period (i.e. on 1 April 2014), the company changed to importing its purchases from a foreign supplier because the trade prices quoted by the new supplier were consistently 10% below those of its previous supplier. However, the new supplier offered a shorter period of credit than the previous supplier (all purchases are on credit). In order to encourage higher sales, CL Ltd increased its credit period to its customers, and some of the cost savings (on trade purchases) were passed on to customers by reducing selling prices on both cash and credit sales by 5% across all products.

Required:
(i) Calculate the gross profit margin that you would have expected CL Ltd to achieve for the year ended 31 March 2015 based on the selling and purchase price changes described by the directors. (2 marks)

(ii) Comment on the directors’ surprise at the unchanged gross profit and suggest what other factors may have affected gross profit for the year ended 31 March 2015.

(3 marks)
(Total: 20 marks)

Answer

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Level: Level 2

Topic: Financial Statement Analysis, Preparation of Financial Statements
Series: NOV 2015

FR – Nov 2015 – L2 – Q2 – Financial Statement Analysis

This question requires calculating financial ratios and analyzing Kack Ltd's financial performance and position for the year ended 31 March 2015 compared to the previous year.

Question

Kack Ltd is a listed company that assembles domestic electrical goods which it then sells to both wholesale and retail customers. Kack Ltd’s management was disappointed in the company’s results for the year ended 31 March 2014. In an attempt to improve performance, the following measures were taken early in the year ended 31 March 2015:

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 Kack Ltd to dispose of surplus plant.

Kack Ltd’s summarised financial statements for the year ended 31 March 2015 are set out below:

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2015

Description	GHSm
Revenue (25% cash sales)	4,000
Cost of sales	(3,450)
Gross profit	550
Operating expenses	(370)
Operating profit	180
Profit on disposal of plant (note (i))	40
Financial charges	(20)
Profit before tax	200
Income tax expense	(50)
Profit for the year	150

STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2015

Description	GHSm	GHSm
Non-current assets
Property, plant, and equipment (note (ii))	550
Current assets
Inventory	250
Trade receivables	360
Bank	nil
Total current assets	610
Total assets		1,160
Equity and liabilities
Equity
Stated capital (400m shares)	100
Income surplus	380
Total equity		480
Non-current liabilities
8% loan notes	200
Current liabilities
Bank overdraft	10
Trade payables	430
Current tax payables	40
Total current liabilities		480
Total equity and liabilities		1,160

Below are ratios calculated for the year ended 31 March 2014:

Return on year-end capital employed (profit before interest and tax over total assets less current liabilities): 28.1%
Net assets (equal to capital employed) turnover: 4 times
Gross profit margin: 17%
Net profit (before tax) margin: 6.3%
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:

Kack Ltd received GHS 120 million from the sale of plant that had a carrying amount of GHS 80 million at the date of its sale.
The market price of Kack Ltd’s share throughout the year averaged GHS 3.75 each.
There were no issues or redemption of shares or loans during the year.
Dividends paid during the year ended 31 March 2015 amounted to GHS 90 million, maintaining the same dividend paid in the year ended 31 March 2014.

Required:

a) Calculate ratios for the year ended 31 March 2015 (showing your workings) for Kack Ltd, equivalent to those provided above.
(10 marks)

b) Analyse the financial performance and position of Kack Ltd for the year ended 31 March 2015 compared to the previous year.
(10 marks)
(Total: 20 marks)

Answer

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Tags: Asset Turnover, Current Ratio, Dividend Yield, Financial performance analysis, Inventory holding period, Liquidity, Payables, Profit margin, Ratio Analysis, Receivables, Return on Capital Employed
Level: Level 2