- 20 Marks
FR – May 2021 – L2 – Q5 – Performance Analysis
Analyze profitability, liquidity, and financial stability of Pepeyoyo Limited based on provided ratios.
Question
You are the Chief Accountant of Jolmarg Nigeria Limited. Pepeyoyo Limited is a competitor in the same industry as Jolmarg and has been operating for the past 20 years.
The following is the result of Pepeyoyo Limited for the last three years ended December 31:
| Ratios | 2016 | 2017 | 2018 |
|---|---|---|---|
| Gross profit margin (%) | 34 | 34.4 | 35.4 |
| ROCE (%) | 21.1 | 21.5 | 17.8 |
| Net profit margin (%) | 11.9 | 12.4 | 11.4 |
| Asset turnover (times) | 1.78 | 1.73 | 1.56 |
| Gearing ratio (%) | 15.6 | 24.3 | 23.6 |
| Debt ratio (%) | 18.5 | 32.0 | 30.9 |
| Interest cover (times) | 16.7 | 8.1 | 5.5 |
| Current ratio | 3:1 | 2.8:1 | 2.7:1 |
| Quick ratio | 1.2:1 | 1.1:1 | 1.1:1 |
| Receivable collection period (days) | 46 | 52 | 64 |
| Inventory turnover period (days) | 158 | 171 | 182 |
| Payable payment period (days) | 35 | 42 | 46 |
Required:
a. Write a report to the finance director of Jolmarg Nigeria Limited analyzing the performance (profitability, liquidity, and long-term financial stability) of Pepeyoyo Limited based on the information available.
(10 Marks)
b. Identify FIVE areas which require further investigation, including references to other pieces of information which would complement your analysis of the performance of Pepeyoyo Limited.
(10 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Liquidity, Long-Term Stability, Profitability, Ratio Analysis
- Level: Level 2
- Topic: Performance analysis
- Series: MAY 2021
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