Acquisition Analysis – NBC Institute

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

Question

Chisom Plc experienced rapid growth in recent years through the acquisition and integration of other companies. Chisom Plc is interested in acquiring Oyowood Limited, a retailing company, which is one of several companies owned and managed by the same family.

The summarized financial statements of Oyowood Limited for the year ended December 31, 2022, are as follows:

From the above financial statements, Chisom Plc has calculated for Oyowood Limited the ratios below for the year ended December 31, 2022. It has also obtained the equivalent ratios for the retail sector average, which can be taken to represent Oyowood‟s sector.

Additional Information:

Oyowood Limited buys all inventories from family companies at a 10% discount below market prices.
Post-acquisition, Chisom Plc would replace the board of directors with a new board at a remuneration cost of ₦2.5 million per annum.
Directors’ loan accounts will be refinanced through a 10% interest-bearing commercial loan of the same amount.
The purchase price for Oyowood Limited is expected to be ₦30 million.

Required:

a. As the financial analyst for Chisom Plc, recalculate the ratios for Oyowood Limited after adjustments based on points (i) to (iv) above. (10 Marks)

b. Draft a memo to the managing director of Chisom Plc commenting on the adjusted performance of Oyowood Limited. (10 Marks)

Answer

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Tags: Acquisition Analysis, Financial Adjustments, Performance Evaluation, Ratio Analysis
Level: Level 2

Topic: Business Combinations (IFRS 3)

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.

Question

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition Analysis, Blockchain, Financial Ratios, Financial Reporting, Performance Scorecard
Level: Level 2

Topic: Business Acquisition, Conceptual Framework for Financial Reporting, Ratio Analysis
Series: NOV 2022

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

Question

The summarized financial statements of Oyowood Limited for the year ended December 31, 2022, are as follows:

Additional Information:

Oyowood Limited buys all inventories from family companies at a 10% discount below market prices.
Post-acquisition, Chisom Plc would replace the board of directors with a new board at a remuneration cost of ₦2.5 million per annum.
Directors’ loan accounts will be refinanced through a 10% interest-bearing commercial loan of the same amount.
The purchase price for Oyowood Limited is expected to be ₦30 million.

Required:

a. As the financial analyst for Chisom Plc, recalculate the ratios for Oyowood Limited after adjustments based on points (i) to (iv) above. (10 Marks)

b. Draft a memo to the managing director of Chisom Plc commenting on the adjusted performance of Oyowood Limited. (10 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition Analysis, Financial Adjustments, Performance Evaluation, Ratio Analysis
Level: Level 2

Topic: Business Combinations (IFRS 3)

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.

Question

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition Analysis, Blockchain, Financial Ratios, Financial Reporting, Performance Scorecard
Level: Level 2

Topic: Business Acquisition, Conceptual Framework for Financial Reporting, Ratio Analysis
Series: NOV 2022

Question Tag: Acquisition Analysis

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FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

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.

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

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.

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FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

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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.

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FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

You're reporting an error for "FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)"

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.

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