- 20 Marks
CR – Nov 2022 – L3 – Q2 – Presentation of Financial Statements (IAS 1)
Calculate key financial ratios and evaluate the company's performance for shareholder and lender insight.
Question
A-Z is considering raising external finance through offering its shares for sale or obtaining a term loan from the bank. The company’s financial statements for the year ended November 30, 2021, have been subjected to financial analysis as follows:
Statement of Comprehensive Income for Year Ended November 30:
| 2021 (N’000) | 2020 (N’000) | |
|---|---|---|
| Profit before interest and tax | 6,600 | 4,710 |
| Interest expense | (510) | (450) |
| Profit before tax | 6,090 | 4,260 |
| Income tax expense | (2,190) | (1,560) |
| Profit after tax | 3,900 | 2,700 |
| Dividends paid | (750) | (750) |
| Retained profit | 3,150 | 1,950 |
Statement of Financial Position as at November 30:
| 2021 (N’000) | 2020 (N’000) | |
|---|---|---|
| Non-current assets | 19,050 | 16,800 |
| Current assets: | ||
| Trade receivables | 6,300 | 6,210 |
| Inventories | 5,130 | 4,620 |
| Total current assets | 11,430 | 10,830 |
| Total assets | 30,480 | 27,630 |
| Equity and liabilities | ||
| Equity: | ||
| Share capital (ordinary shares of N1 fully paid up) | 9,000 | 9,000 |
| Retained earnings | 11,100 | 7,950 |
| Total Equity | 20,100 | 16,950 |
| Non-current liabilities: | ||
| 10% Loan notes 2022/2023 | 4,500 | 4,500 |
| Current liabilities: | ||
| Trade payables | 3,120 | 3,390 |
| Taxation | 1,650 | 1,350 |
| Bank overdraft | 1,110 | 1,440 |
| Total Equity and Liabilities | 30,480 | 27,630 |
Required:
a. Compute the following ratios for the years 2020 and 2021:
- Return on equity
- Dividend cover
- Dividend pay-out ratio
- Interest cover
(8 Marks)
b. Based on the ratios computed above, prepare a report on the performance and state of the company, assuming potential shareholders and lenders are the recipients of your report.
(12 Marks)
(Total 20 Marks)
Find Related Questions by Tags, levels, etc.
Report an error