Question Tag: Efficiency Ratios

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  • 20 Marks

FR – May 2018 – L2 – Q4 – Consolidated Financial Statements (IFRS 10)

Assess the financial performance and position of two companies using specified ratios and explain the limitations of ratio analysis.

Ibadan Nigeria Limited is considering acquiring a suitable private limited liability company. The board of directors engaged a financial consultant to analyze the financial position of two companies, Abuja Limited and Rivers Limited, which are both receptive to the acquisition. The draft financial statements of the two companies are as follows:

Statements of Profit or Loss

a. Draft a report to the chairman of the board of directors of Ibadan Limited to assess the financial performance and position of the two companies using the following specific ratios: (12 Marks) i. Profitability ratios: Gross profit percentage and net profit margin. ii. Liquidity ratios: Acid test ratio, current ratio, trade receivable period. iii. Long-term financial stability ratios: Gearing ratio and proprietary ratio. iv. Efficiency ratios: Total asset turnover and non-current asset turnover.

b. Explain the limitations of ratio analysis and further information that may be useful to the board of directors when making the acquisition decision. (8 Marks)

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  • 20 Marks

FR – March 2024 – L2 – Q4a – Financial Statement Analysis

Calculate financial ratios for Mantemante Ltd and compare them with industry averages.

The following information has been extracted from the Financial Statements of Mantemante Ltd.

Statement of Financial Position as at 31 December 2023

Additional information, including ratios such as Return on Capital Employed, Net Profit Margin, Asset Turnover, Gearing, etc., is also provided.

Required:
a) Compute the comparable ratios for Mantemante Ltd for the years 2022 and 2023.
(10 marks)
b) Write a report for the Board of Directors analyzing the performance of Mantemante Ltd with references to the ratios for the two years and industry averages.
(10 marks)

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  • 3 Marks

FR – Nov 2016 – L2 – Q4b – Financial Statement Analysis

Calculate and explain the non-current asset turnover ratio for Ashtown Ltd and compare it with Krofrom Ltd.

Krofrom Ltd is also a listed company operating in the manufacturing sector in Ghana. The non-current asset turnover ratio of Krofrom Ltd for the year 2015 is 1.3.

Required:
Compute the non-current asset turnover ratio for Ashtown Ltd and explain TWO reasons why these ratios may not provide a good comparison of the efficiency of the entities.

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  • 9 Marks

MA – Nov 2018 – L2 – Q5b – Standard costing and variance analysis

Calculation and interpretation of efficiency, capacity, and production volume ratios for Ghana National Gas Company.

Ghana National Gas Company is a gas processing company and has its plant located in Atuabo in the Western Region. The plant produces three gas products – Lean Gas (LG), Liquefied Petroleum Gas (LPG), and Natural Gas Condensate (NGC).

The standard time for the production of the products are:

  • LG – 40 minutes per metric tonne
  • LPG – 30 minutes per metric tonne
  • NGC – 45 minutes per metric tonne

The budget for the month of February is as follows:

  • LG – 45,000 metric tonnes
  • LPG – 25,000 metric tonnes
  • NGC – 30,000 metric tonnes

The actual data for the month were as follows:

  • Labour hours: 70,000 hours
  • Production: LG – 48,000 metric tonnes, LPG – 27,000 metric tonnes, NGC – 25,000 metric tonnes

Required:

i) Compute and interpret the efficiency ratio. (3 marks)

ii) Compute and interpret the capacity ratio. (3 marks)

iii) Compute and interpret the production volume or activity ratio. (3 marks)

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  • 20 Marks

FA – Nov 2019 – L1 – Q5 – Preparation of limited liability company financial statements

Calculate profitability, liquidity, and efficiency ratios, discuss the advantages and disadvantages of ratio analysis, and explain the responsibilities of directors and auditors.

The following Profit or Loss Account and Statement of Financial Position relate to Dombo Ltd for the year ended 31 December 2018 (with comparative figures for the year ended 31 December 2017 where relevant).

Summarised Profit or Loss Account for the Year Ended 31 December 2018

Required:

a) Calculate TWO (2) ratios each for the year ended 31 December 2018 and 2017 respectively in the following categories:

i) Profitability

ii) Liquidity

iii) Efficiency

(9 marks)

b) State FOUR (4) advantages and TWO (2) disadvantages of ratio analysis. (6 marks)

c) Explain the responsibilities of the directors and the external auditors towards the financial statements of a company. (5 marks)

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  • 19 Marks

FA – May 2018 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)

Compute profitability and efficiency ratios for three shops and provide commentary on the results.

The owners of three electrical shops that sell very similar goods, but which operate in different towns, have agreed to discuss their business practices. They hope to identify ways in which each might improve performance. As a first step, the three businesses have sent their latest annual reports to an accountant. The accountant has made sure that their financial statements are comparable in terms of accounting policies and assumptions and has summarized the main figures. The accountant has prepared the following summary:

Statement of Profit or Loss for the year ended 30 June 2017

Required:
a) Compute TWO ratios each of profitability and efficiency of the shops, highlighting areas in which one or more appear(s) to be most successful. (10 marks)

b) You should make comments on what each ratio tells the user. (10 marks)

 

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  • 20 Marks

FA – May 2017 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret various financial ratios for Father Ltd and Son Ltd, focusing on liquidity, profitability, and efficiency.

The following is a summary of the Financial Statements of two companies in the retailing business.

Required:

a) Compute the following ratios for both companies:

i) Current Ratio (2 marks)
ii) Acid Test Ratio (2 marks)
iii) Gross Profit Margin (2 marks)
iv) Return on Capital Employed (2 marks)
v) Trade Payable Period (2 marks)
vi) Receivable Collection Period (2 marks)

b) Using the ratios calculated in (a) above, interpret the results under the following categories:

i) Profitability (3 marks)
ii) Liquidity (3 marks)
iii) Efficiency (3 marks)

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  • 20 Marks

FR – May 2018 – L2 – Q4 – Consolidated Financial Statements (IFRS 10)

Assess the financial performance and position of two companies using specified ratios and explain the limitations of ratio analysis.

Ibadan Nigeria Limited is considering acquiring a suitable private limited liability company. The board of directors engaged a financial consultant to analyze the financial position of two companies, Abuja Limited and Rivers Limited, which are both receptive to the acquisition. The draft financial statements of the two companies are as follows:

Statements of Profit or Loss

a. Draft a report to the chairman of the board of directors of Ibadan Limited to assess the financial performance and position of the two companies using the following specific ratios: (12 Marks) i. Profitability ratios: Gross profit percentage and net profit margin. ii. Liquidity ratios: Acid test ratio, current ratio, trade receivable period. iii. Long-term financial stability ratios: Gearing ratio and proprietary ratio. iv. Efficiency ratios: Total asset turnover and non-current asset turnover.

b. Explain the limitations of ratio analysis and further information that may be useful to the board of directors when making the acquisition decision. (8 Marks)

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  • 20 Marks

FR – March 2024 – L2 – Q4a – Financial Statement Analysis

Calculate financial ratios for Mantemante Ltd and compare them with industry averages.

The following information has been extracted from the Financial Statements of Mantemante Ltd.

Statement of Financial Position as at 31 December 2023

Additional information, including ratios such as Return on Capital Employed, Net Profit Margin, Asset Turnover, Gearing, etc., is also provided.

Required:
a) Compute the comparable ratios for Mantemante Ltd for the years 2022 and 2023.
(10 marks)
b) Write a report for the Board of Directors analyzing the performance of Mantemante Ltd with references to the ratios for the two years and industry averages.
(10 marks)

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  • 3 Marks

FR – Nov 2016 – L2 – Q4b – Financial Statement Analysis

Calculate and explain the non-current asset turnover ratio for Ashtown Ltd and compare it with Krofrom Ltd.

Krofrom Ltd is also a listed company operating in the manufacturing sector in Ghana. The non-current asset turnover ratio of Krofrom Ltd for the year 2015 is 1.3.

Required:
Compute the non-current asset turnover ratio for Ashtown Ltd and explain TWO reasons why these ratios may not provide a good comparison of the efficiency of the entities.

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  • 9 Marks

MA – Nov 2018 – L2 – Q5b – Standard costing and variance analysis

Calculation and interpretation of efficiency, capacity, and production volume ratios for Ghana National Gas Company.

Ghana National Gas Company is a gas processing company and has its plant located in Atuabo in the Western Region. The plant produces three gas products – Lean Gas (LG), Liquefied Petroleum Gas (LPG), and Natural Gas Condensate (NGC).

The standard time for the production of the products are:

  • LG – 40 minutes per metric tonne
  • LPG – 30 minutes per metric tonne
  • NGC – 45 minutes per metric tonne

The budget for the month of February is as follows:

  • LG – 45,000 metric tonnes
  • LPG – 25,000 metric tonnes
  • NGC – 30,000 metric tonnes

The actual data for the month were as follows:

  • Labour hours: 70,000 hours
  • Production: LG – 48,000 metric tonnes, LPG – 27,000 metric tonnes, NGC – 25,000 metric tonnes

Required:

i) Compute and interpret the efficiency ratio. (3 marks)

ii) Compute and interpret the capacity ratio. (3 marks)

iii) Compute and interpret the production volume or activity ratio. (3 marks)

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  • 20 Marks

FA – Nov 2019 – L1 – Q5 – Preparation of limited liability company financial statements

Calculate profitability, liquidity, and efficiency ratios, discuss the advantages and disadvantages of ratio analysis, and explain the responsibilities of directors and auditors.

The following Profit or Loss Account and Statement of Financial Position relate to Dombo Ltd for the year ended 31 December 2018 (with comparative figures for the year ended 31 December 2017 where relevant).

Summarised Profit or Loss Account for the Year Ended 31 December 2018

Required:

a) Calculate TWO (2) ratios each for the year ended 31 December 2018 and 2017 respectively in the following categories:

i) Profitability

ii) Liquidity

iii) Efficiency

(9 marks)

b) State FOUR (4) advantages and TWO (2) disadvantages of ratio analysis. (6 marks)

c) Explain the responsibilities of the directors and the external auditors towards the financial statements of a company. (5 marks)

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  • 19 Marks

FA – May 2018 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)

Compute profitability and efficiency ratios for three shops and provide commentary on the results.

The owners of three electrical shops that sell very similar goods, but which operate in different towns, have agreed to discuss their business practices. They hope to identify ways in which each might improve performance. As a first step, the three businesses have sent their latest annual reports to an accountant. The accountant has made sure that their financial statements are comparable in terms of accounting policies and assumptions and has summarized the main figures. The accountant has prepared the following summary:

Statement of Profit or Loss for the year ended 30 June 2017

Required:
a) Compute TWO ratios each of profitability and efficiency of the shops, highlighting areas in which one or more appear(s) to be most successful. (10 marks)

b) You should make comments on what each ratio tells the user. (10 marks)

 

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You're reporting an error for "FA – May 2018 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)"

  • 20 Marks

FA – May 2017 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret various financial ratios for Father Ltd and Son Ltd, focusing on liquidity, profitability, and efficiency.

The following is a summary of the Financial Statements of two companies in the retailing business.

Required:

a) Compute the following ratios for both companies:

i) Current Ratio (2 marks)
ii) Acid Test Ratio (2 marks)
iii) Gross Profit Margin (2 marks)
iv) Return on Capital Employed (2 marks)
v) Trade Payable Period (2 marks)
vi) Receivable Collection Period (2 marks)

b) Using the ratios calculated in (a) above, interpret the results under the following categories:

i) Profitability (3 marks)
ii) Liquidity (3 marks)
iii) Efficiency (3 marks)

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