Topic: Ratio Analysis

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  • 20 Marks

FRPA – APRIL 2024 – L3 – Q4 – Potco PLC Ratios and Performance Report

Compute six ratios for Potco PLC and write a report assessing its financial performance and position relative to the industry.

Potco PLC is a listed Ghanaian company that produces textile prints for both local and African markets. As at the year ended 31 March 2023, the company made a Gross Profit of GH$12,150. Cost of Sales for the year was GH$77,850 and Operating Profit Before Interest and Tax was GH$47,130. Finance Cost for the year was GH$920 and Tax Charged to Profit or Loss was GH$1,400.

The Inventory Turnover was 3.6 times. Dividend Paid Per Share was GH$0. 36 resulting in a Dividend Yield of 6 %. Current Assets consist of Inventory, Cash and Trade Receivables.

Extracts from the Statement of Financial Position as at 31 March 2023 were as follows: GH$

| Non-Current Assets | 63,320 | | Current Asset (excluding Inventory and Cash) | 18,605 | | Current Liabilities | 27,600 | | Shareholder’s Fund | 58,480 | | Cash | 6,000 | | 10% Debenture | 23,500 | | Share Capital (@ GH63) | 18,000 |

The following ratios relate to the industry in which Potco Plc belongs to:

| Profit (after Tax) Margin | 4.1% | | Current Ratio | 1.12 | | Return on Capital Employed (ROCE) | 10.0% | | Inventory Turnover | 3.47 | | Receivables Period | 87 days | | Dividend Yield | 5.8% | | EPS Ratio | 12.0 | | Debt/Equity Ratio | 32.6% |

You are required to: a) As far as the above information permits, compute the following ratios for Potco 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 (12 marks) b) Using the ratios above, write a report to the Board of Potco PLC to assess the Financial Performance and Financial Position of the entity, relative to its industry. (8 marks) [Total: 20 marks]

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  • 30 Marks

FR – Nov 2022 – L2 – Q1 – Financial Performance Ratios

This question asks for the computation of key financial ratios and an analysis of the viability of acquiring controlling interests in two companies.

There has been agitation to stop importation of containers from China, to increase patronage of local industries. The Board of Favour PLC is planning to acquire 75% controlling interests in either Grace Limited or Blessing Limited which produce better and cheaper containers locally. As a trainee working in
Obokun Chartered Accountants, the Managing Partner has requested you to carry out performance score cards of the companies using accounting ratios to assess the viability of the acquisition.

Statement of comprehensive income for the year ended December 31, 2020:



Additional Information:
(i) Inventories as at December 31, 2019 were N60 million, N30 million and N50 Million and the current market prices, 30 kobo, 28 kobo and 10 kobo
for Favour Plc, Grace Limited and Blessing Limited respectively.
(ii) Purchases for cash within 365 days in the year 2020 were 10%, 20% and 40% of cost of sales for Favour Plc, Grace Limited and Blessing Limited
respectively.
Required:
a. Calculate the following ratios for Grace Limited and Blessing Limited.
i. Net profit margin
ii. Quick ratio
iii. Debt equity ratio
iv. Proprietary ratio
v. Earnings yield
vi. Net asset per share

b. Draft a technical report titled “Performance Scorecard‟ of Blessing Limited and Grace Limited and advise Favour Plc in which of the two companies it should acquire 75% controlling interests. (10 Marks)

c. The Chief Financial Officer (CFO) of Favour Plc noted that the records of Blessing Limited and Grace Limited are maintained using block chain technologies.

Required: Discuss the type of records that a company can maintain in blockchain and state TWO benefits of making use of this technology. (10 Marks)

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  • 9 Marks

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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  • 20 Marks

MA – Nov 2019 – L2 – Q1a – Performance analysis

Calculation of key financial ratios for GRAT Authority and evaluation of financial performance from 2017 to 2018.

GRAT Authority operates passenger railway services and is responsible for the maintenance of track signaling equipment, and other facilities such as stations. In recent years it has been criticized for providing poor services to the traveling public in terms of punctuality, safety, and the standard of facilities offered to passengers. Last year, GRAT Authority invested over GH¢20 million in new carriages, station facilities, and track maintenance programs in an attempt to address these criticisms.

Summarized financial results for GRAT Authority for the last two years are given below:

Extracts of Statement of Profit or Loss account for the year ended 31 December

Statement of Financial Position as at 31 December

Required:

a) Calculate the following ratios for GRAT Authority for 2017 and 2018, clearly showing your workings.

i) Return on capital employed (ROCE)
ii) Net profit margin
iii) Asset turnover
iv) Current ratio

b) Evaluate the financial performance of the entity in 2017 and 2018 as revealed by the above ratios.

c) Suggest THREE (3) non-financial indicators that could be useful in measuring the performance of a passenger railway service and explain why your chosen indicators are important.

d) Explain the term short-termism and suggest ways in which a long-term view can be encouraged.
(Total: 20 marks)

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  • 20 Marks

FRPA – APRIL 2024 – L3 – Q4 – Potco PLC Ratios and Performance Report

Compute six ratios for Potco PLC and write a report assessing its financial performance and position relative to the industry.

Potco PLC is a listed Ghanaian company that produces textile prints for both local and African markets. As at the year ended 31 March 2023, the company made a Gross Profit of GH$12,150. Cost of Sales for the year was GH$77,850 and Operating Profit Before Interest and Tax was GH$47,130. Finance Cost for the year was GH$920 and Tax Charged to Profit or Loss was GH$1,400.

The Inventory Turnover was 3.6 times. Dividend Paid Per Share was GH$0. 36 resulting in a Dividend Yield of 6 %. Current Assets consist of Inventory, Cash and Trade Receivables.

Extracts from the Statement of Financial Position as at 31 March 2023 were as follows: GH$

| Non-Current Assets | 63,320 | | Current Asset (excluding Inventory and Cash) | 18,605 | | Current Liabilities | 27,600 | | Shareholder’s Fund | 58,480 | | Cash | 6,000 | | 10% Debenture | 23,500 | | Share Capital (@ GH63) | 18,000 |

The following ratios relate to the industry in which Potco Plc belongs to:

| Profit (after Tax) Margin | 4.1% | | Current Ratio | 1.12 | | Return on Capital Employed (ROCE) | 10.0% | | Inventory Turnover | 3.47 | | Receivables Period | 87 days | | Dividend Yield | 5.8% | | EPS Ratio | 12.0 | | Debt/Equity Ratio | 32.6% |

You are required to: a) As far as the above information permits, compute the following ratios for Potco 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 (12 marks) b) Using the ratios above, write a report to the Board of Potco PLC to assess the Financial Performance and Financial Position of the entity, relative to its industry. (8 marks) [Total: 20 marks]

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  • 30 Marks

FR – Nov 2022 – L2 – Q1 – Financial Performance Ratios

This question asks for the computation of key financial ratios and an analysis of the viability of acquiring controlling interests in two companies.

There has been agitation to stop importation of containers from China, to increase patronage of local industries. The Board of Favour PLC is planning to acquire 75% controlling interests in either Grace Limited or Blessing Limited which produce better and cheaper containers locally. As a trainee working in
Obokun Chartered Accountants, the Managing Partner has requested you to carry out performance score cards of the companies using accounting ratios to assess the viability of the acquisition.

Statement of comprehensive income for the year ended December 31, 2020:



Additional Information:
(i) Inventories as at December 31, 2019 were N60 million, N30 million and N50 Million and the current market prices, 30 kobo, 28 kobo and 10 kobo
for Favour Plc, Grace Limited and Blessing Limited respectively.
(ii) Purchases for cash within 365 days in the year 2020 were 10%, 20% and 40% of cost of sales for Favour Plc, Grace Limited and Blessing Limited
respectively.
Required:
a. Calculate the following ratios for Grace Limited and Blessing Limited.
i. Net profit margin
ii. Quick ratio
iii. Debt equity ratio
iv. Proprietary ratio
v. Earnings yield
vi. Net asset per share

b. Draft a technical report titled “Performance Scorecard‟ of Blessing Limited and Grace Limited and advise Favour Plc in which of the two companies it should acquire 75% controlling interests. (10 Marks)

c. The Chief Financial Officer (CFO) of Favour Plc noted that the records of Blessing Limited and Grace Limited are maintained using block chain technologies.

Required: Discuss the type of records that a company can maintain in blockchain and state TWO benefits of making use of this technology. (10 Marks)

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  • 9 Marks

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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  • 20 Marks

MA – Nov 2019 – L2 – Q1a – Performance analysis

Calculation of key financial ratios for GRAT Authority and evaluation of financial performance from 2017 to 2018.

GRAT Authority operates passenger railway services and is responsible for the maintenance of track signaling equipment, and other facilities such as stations. In recent years it has been criticized for providing poor services to the traveling public in terms of punctuality, safety, and the standard of facilities offered to passengers. Last year, GRAT Authority invested over GH¢20 million in new carriages, station facilities, and track maintenance programs in an attempt to address these criticisms.

Summarized financial results for GRAT Authority for the last two years are given below:

Extracts of Statement of Profit or Loss account for the year ended 31 December

Statement of Financial Position as at 31 December

Required:

a) Calculate the following ratios for GRAT Authority for 2017 and 2018, clearly showing your workings.

i) Return on capital employed (ROCE)
ii) Net profit margin
iii) Asset turnover
iv) Current ratio

b) Evaluate the financial performance of the entity in 2017 and 2018 as revealed by the above ratios.

c) Suggest THREE (3) non-financial indicators that could be useful in measuring the performance of a passenger railway service and explain why your chosen indicators are important.

d) Explain the term short-termism and suggest ways in which a long-term view can be encouraged.
(Total: 20 marks)

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