Question Tag: Asset Turnover

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  • 20 Marks

CR – May 2017 – L3 – Q2 – Emerging Trends in Corporate Reporting

Analyze and compare the performance of Lanke Plc and its group for 2014 and 2015 using selected financial ratios.

The following figures have been extracted from the financial statements of Lanke Plc and its subsidiaries for the years ended December 31, 2014, and December 31, 2015:

The directors of Lanke Plc would like to know how the individual performance of the company and that of the group compares with each other and over the two years. In particular, they are interested in performance measures around profitability, long-term solvency, and asset utilization using only the ratios indicated below. They would also want a brief explanation of why the analysis of the performance of a single company may differ from that of a group company.

Required:

Prepare a performance report that addresses the needs of the directors of Lanke Plc for the two-year period 2014 and 2015.

Note: Limit your ratio computation to the following:

  • Return on Capital Employed (ROCE)
  • Profit Margin
  • Asset Turnover
  • Gearing
  • Interest Cover
    (Show all workings)

(Total: 20 Marks)

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  • 20 Marks

FR – May 2015 – L2 – SB – Q3 – Statement of Cash Flows (IAS 7)

Calculate and analyze financial ratios and prepare cash flows from operating activities for Galadanci Plc.

(a) Galadanci Plc, a telecommunications company, has the following financial statements for the years ending 31 December 2013 and 2014. Using the statements below, calculate specific ratios and analyze Galadanci Plc’s performance:

Statements of Profit or Loss and Other Comprehensive Income for the year ended

2014 (N’billion) 2013 (N’billion)
Revenue 2,430 1,638
Cost of Sales (1,701) (983)
Gross Profit 729 655
Administrative Costs (311) (180)
Distribution Costs (207) (117)
Finance Costs (36) (6)
Profit before Taxation 175 352
Income Tax Expense (54) (102)
Profit for the Year 121 250

Statements of Financial Position as at 31 December

Additional Information for 2014

  1. Galadanci Plc acquired 60% of Papanga Plc’s shares to diversify into agriculture.
  2. The company increased its mobile subscriber base, raising the average revenue per user.
  3. No dividends were received from Papanga Plc, and the share value remained constant.

Required:

  1. Calculate the following ratios for the year ended 31 December 2014, analyze Galadanci Plc’s performance, and comment on qualitative factors impacting the company:
    • Gross Profit Percentage
    • Return on Capital Employed (where capital employed = Total Assets – Current Liabilities)
    • Net Profit (PBIT) Percentage
    • Asset Turnover
    • Gearing Ratio
    • Debt/Equity Ratio (16 Marks)
  2. Prepare Galadanci Plc’s Cash Flows from Operating Activities using the indirect method according to IAS 7. (4 Marks)

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  • 20 Marks

PM – Nov 2014 – L2 – Q3 – Divisional Performance Measurement

Compare financial performance of Purity Nigeria Ltd. and Benchmark Co. Ltd using key financial ratios and offer strategic improvement recommendations.

Purity Nigeria Limited is a company that produces table water. The company’s board
plans to restructure its operations with the aim of boosting its market share and
profitability.

The financial results of Purity Nigeria Limited and Bench Mark Co. Limited, which is
the leader in the industry, are as follows:

Operating Statements for the year ended 31 December, 2013

Summarised Statements of Financial Position as at 31 December, 2013.

Required:

a. Compute the following performance indices for both companies:
i Profit margin
ii. Asset turnover
iii. Returns On Capital Employed (ROCE)
iv. Current ratio
v. Debt-equity ratio (5 Marks)

b. Compare and analyse the performance of the two companies computed in (a)
above and explain what the board of Purity Nigeria Limited needs to do to
achieve their objectives. (10 Marks)

c. What other non-financial measures can influence the decision of the board of
Purity Nigeria Limited? (5 Marks)

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  • 20 Marks

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.

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:

  1. 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.
  2. The market price of Kack Ltd’s share throughout the year averaged GHS 3.75 each.
  3. There were no issues or redemption of shares or loans during the year.
  4. 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)

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  • 8 Marks

MA – April 2022 – L2 – Q1a – Divisional performance

Evaluate whether a fitness club manager should receive a bonus based on forecasted financial performance.

a) Gyakie Ltd (Gyakie) operates a chain of fitness clubs in Oti Region. Managers at the fitness clubs receive a quarterly bonus if their fitness club achieves or exceeds all of the following financial targets:

  • Return on Capital Employed (ROCE): 8% (based on net assets)
  • Asset turnover: 40%
  • Operating profit margin: 20%

Summary of the actual performance for Quarter 3 of the current year for one of the fitness clubs in Papase is detailed below:

Description Amount (GH¢)
Revenue 36,000
Staff costs 12,000
Other fixed costs 22,000
Net assets 110,000
Number of customers 600

The quarterly financial targets are set by the head office finance team, and all fitness clubs are given the same target. Gyakie is currently forecasting the performance of its fitness clubs in Quarter 4. The following information will be used to forecast the performance for each of its fitness clubs in Quarter 4:

  • The average revenue per customer will increase by 10% on Quarter 3.
  • Customer numbers will increase by 5% on Quarter 3.
  • Staff costs and net assets are expected to remain at the same level as Quarter 3.
  • Other fixed costs are expected to decrease by 5% on Quarter 3.
  • Staff and other costs are fixed (they are not related to the number of customers).

Required: Justify whether the manager of the fitness club in Papase should receive a bonus in Quarter 4 based on the forecast performance. Your computation should include operating profit margin, ROCE, and asset turnover for Quarter 4.

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  • 20 Marks

FA – Nov 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret financial performance ratios for Edumfa Ltd in comparison to a competitor.

The following summarised information is available in respect of Edumfa Ltd for the year ended 31 July 2022:

The performance ratios for a competitor company for the same period are as follows:

Description Ratio
Return On Capital Employed (ROCE) 25.2%
Asset turnover rate 1.06
Acid test ratio 0.9:1
Return on equity 31.5%
Receivables collection period 38 days

Required:

a) Calculate the performance indicators for Edumfa Ltd as shown for the comparable company. (10 marks)
b) Comment on the performance of Edumfa Ltd for the year ended 31 July 2022 using the information you calculated in (a) above. (10 marks)

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  • 20 Marks

CR – May 2017 – L3 – Q2 – Emerging Trends in Corporate Reporting

Analyze and compare the performance of Lanke Plc and its group for 2014 and 2015 using selected financial ratios.

The following figures have been extracted from the financial statements of Lanke Plc and its subsidiaries for the years ended December 31, 2014, and December 31, 2015:

The directors of Lanke Plc would like to know how the individual performance of the company and that of the group compares with each other and over the two years. In particular, they are interested in performance measures around profitability, long-term solvency, and asset utilization using only the ratios indicated below. They would also want a brief explanation of why the analysis of the performance of a single company may differ from that of a group company.

Required:

Prepare a performance report that addresses the needs of the directors of Lanke Plc for the two-year period 2014 and 2015.

Note: Limit your ratio computation to the following:

  • Return on Capital Employed (ROCE)
  • Profit Margin
  • Asset Turnover
  • Gearing
  • Interest Cover
    (Show all workings)

(Total: 20 Marks)

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  • 20 Marks

FR – May 2015 – L2 – SB – Q3 – Statement of Cash Flows (IAS 7)

Calculate and analyze financial ratios and prepare cash flows from operating activities for Galadanci Plc.

(a) Galadanci Plc, a telecommunications company, has the following financial statements for the years ending 31 December 2013 and 2014. Using the statements below, calculate specific ratios and analyze Galadanci Plc’s performance:

Statements of Profit or Loss and Other Comprehensive Income for the year ended

2014 (N’billion) 2013 (N’billion)
Revenue 2,430 1,638
Cost of Sales (1,701) (983)
Gross Profit 729 655
Administrative Costs (311) (180)
Distribution Costs (207) (117)
Finance Costs (36) (6)
Profit before Taxation 175 352
Income Tax Expense (54) (102)
Profit for the Year 121 250

Statements of Financial Position as at 31 December

Additional Information for 2014

  1. Galadanci Plc acquired 60% of Papanga Plc’s shares to diversify into agriculture.
  2. The company increased its mobile subscriber base, raising the average revenue per user.
  3. No dividends were received from Papanga Plc, and the share value remained constant.

Required:

  1. Calculate the following ratios for the year ended 31 December 2014, analyze Galadanci Plc’s performance, and comment on qualitative factors impacting the company:
    • Gross Profit Percentage
    • Return on Capital Employed (where capital employed = Total Assets – Current Liabilities)
    • Net Profit (PBIT) Percentage
    • Asset Turnover
    • Gearing Ratio
    • Debt/Equity Ratio (16 Marks)
  2. Prepare Galadanci Plc’s Cash Flows from Operating Activities using the indirect method according to IAS 7. (4 Marks)

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  • 20 Marks

PM – Nov 2014 – L2 – Q3 – Divisional Performance Measurement

Compare financial performance of Purity Nigeria Ltd. and Benchmark Co. Ltd using key financial ratios and offer strategic improvement recommendations.

Purity Nigeria Limited is a company that produces table water. The company’s board
plans to restructure its operations with the aim of boosting its market share and
profitability.

The financial results of Purity Nigeria Limited and Bench Mark Co. Limited, which is
the leader in the industry, are as follows:

Operating Statements for the year ended 31 December, 2013

Summarised Statements of Financial Position as at 31 December, 2013.

Required:

a. Compute the following performance indices for both companies:
i Profit margin
ii. Asset turnover
iii. Returns On Capital Employed (ROCE)
iv. Current ratio
v. Debt-equity ratio (5 Marks)

b. Compare and analyse the performance of the two companies computed in (a)
above and explain what the board of Purity Nigeria Limited needs to do to
achieve their objectives. (10 Marks)

c. What other non-financial measures can influence the decision of the board of
Purity Nigeria Limited? (5 Marks)

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  • 20 Marks

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.

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:

  1. 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.
  2. The market price of Kack Ltd’s share throughout the year averaged GHS 3.75 each.
  3. There were no issues or redemption of shares or loans during the year.
  4. 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)

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  • 8 Marks

MA – April 2022 – L2 – Q1a – Divisional performance

Evaluate whether a fitness club manager should receive a bonus based on forecasted financial performance.

a) Gyakie Ltd (Gyakie) operates a chain of fitness clubs in Oti Region. Managers at the fitness clubs receive a quarterly bonus if their fitness club achieves or exceeds all of the following financial targets:

  • Return on Capital Employed (ROCE): 8% (based on net assets)
  • Asset turnover: 40%
  • Operating profit margin: 20%

Summary of the actual performance for Quarter 3 of the current year for one of the fitness clubs in Papase is detailed below:

Description Amount (GH¢)
Revenue 36,000
Staff costs 12,000
Other fixed costs 22,000
Net assets 110,000
Number of customers 600

The quarterly financial targets are set by the head office finance team, and all fitness clubs are given the same target. Gyakie is currently forecasting the performance of its fitness clubs in Quarter 4. The following information will be used to forecast the performance for each of its fitness clubs in Quarter 4:

  • The average revenue per customer will increase by 10% on Quarter 3.
  • Customer numbers will increase by 5% on Quarter 3.
  • Staff costs and net assets are expected to remain at the same level as Quarter 3.
  • Other fixed costs are expected to decrease by 5% on Quarter 3.
  • Staff and other costs are fixed (they are not related to the number of customers).

Required: Justify whether the manager of the fitness club in Papase should receive a bonus in Quarter 4 based on the forecast performance. Your computation should include operating profit margin, ROCE, and asset turnover for Quarter 4.

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  • 20 Marks

FA – Nov 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret financial performance ratios for Edumfa Ltd in comparison to a competitor.

The following summarised information is available in respect of Edumfa Ltd for the year ended 31 July 2022:

The performance ratios for a competitor company for the same period are as follows:

Description Ratio
Return On Capital Employed (ROCE) 25.2%
Asset turnover rate 1.06
Acid test ratio 0.9:1
Return on equity 31.5%
Receivables collection period 38 days

Required:

a) Calculate the performance indicators for Edumfa Ltd as shown for the comparable company. (10 marks)
b) Comment on the performance of Edumfa Ltd for the year ended 31 July 2022 using the information you calculated in (a) above. (10 marks)

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