Question Tag: Net Profit Margin

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  • 20 Marks

FR – Nov 2021 – L2 – Q4 – Presentation of Financial Statements (IAS 1)

Calculate and analyze financial ratios for Onye Nigeria Plc for the years 2019 and 2020.

Below are the statements of financial position of Onye Nigeria Plc as at October 31, 2020, and an extract from the statement of profit or loss for the year ended on that date.

Onye Nigeria Plc
Statement of Financial Position as at October 31, 2020

Item 2020 (N’000) 2019 (N’000)
Non-current assets
Property, plant and equipment 8,325 6,435
Current assets
Inventories 2,880 2,205
Trade receivables 5,535 4,860
Cash and bank 360 540
Total Assets 17,100 14,040
Equity and Liabilities
Equity
Ordinary share capital 3,600 3,600
Retained earnings 5,603 3,938
Non-current liabilities
10% loan notes 3,600 2,700
Current liabilities
Trade payables 3,375 3,105
Bank overdraft 495 360
Taxation 135 90
Accrued expenses 292 247
Total Equity and Liabilities 17,100 14,040

Onye Nigeria Plc
Extracts from Statement of Profit or Loss for the Year Ended October 31

Item 2020 (N’000) 2019 (N’000)
Revenue 50,400 43,875
Cost of sales (38,070) (30,713)
Profit before taxation 2,093 1,440

Additional information:

  1. The profit before tax is after charging:
    Item 2020 (N’000) 2019 (N’000)
    Depreciation 1,620 1,620
    Interest on loan note 360 270
    Interest on bank overdraft 68 41
    Audit fees 54 45
  2. The latest industry average ratios are as follows:
    Ratio Industry Average
    ROCE 18.50%
    Net profit margin 4.73%
    Gross profit margin 35.23%
    Assets turnover 3.91 times
    Current ratio 1.90:1
    Quick ratio 1.27:1
    Trade receivables period 52 days
    Trade payables period 49 days
    Inventory turnover 18.30 times
    Gearing ratio 32.71%

Required:
a. Calculate the above ratios of Onye Nigeria Plc for the years 2019 and 2020. (10 Marks)
b. Analyze the performance and liquidity of Onye Nigeria Plc for the year 2020. (5 Marks)
c. Comment on the limitations of using accounting ratios in financial statement analysis. (5 Marks)

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  • 20 Marks

MA – Nov 2019 – L2 – Q1a – Performance analysis

Calculation of key financial ratios for GRAT Authority and evaluation of financial performance from 2017 to 2018.

GRAT Authority operates passenger railway services and is responsible for the maintenance of track signaling equipment, and other facilities such as stations. In recent years it has been criticized for providing poor services to the traveling public in terms of punctuality, safety, and the standard of facilities offered to passengers. Last year, GRAT Authority invested over GH¢20 million in new carriages, station facilities, and track maintenance programs in an attempt to address these criticisms.

Summarized financial results for GRAT Authority for the last two years are given below:

Extracts of Statement of Profit or Loss account for the year ended 31 December

Statement of Financial Position as at 31 December

Required:

a) Calculate the following ratios for GRAT Authority for 2017 and 2018, clearly showing your workings.

i) Return on capital employed (ROCE)
ii) Net profit margin
iii) Asset turnover
iv) Current ratio

b) Evaluate the financial performance of the entity in 2017 and 2018 as revealed by the above ratios.

c) Suggest THREE (3) non-financial indicators that could be useful in measuring the performance of a passenger railway service and explain why your chosen indicators are important.

d) Explain the term short-termism and suggest ways in which a long-term view can be encouraged.
(Total: 20 marks)

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  • 20 Marks

FA – Nov 2021 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculation and interpretation of financial ratios, including gross profit margin, net profit margin, ROCE, and liquidity ratios, and assessment of liquidity and profitability.

The following summary information relates to two businesses, Danyi and Napo. Both businesses traded in the same market sector for the year ended 31 December 2020.

Statement of Profit or Loss Accounts for the year ended 31 December 2020:

Required:
a) Calculate the following ratios for Danyi and Napo:
i) Gross profit margin
ii) Net profit margin
iii) Return on capital employed (ROCE)
iv) Current ratio
v) Liquid (acid test) ratio
vi) Inventory turnover
(6 marks)

b) Use the ratios calculated in a) to assess:
i) The liquidity of both businesses
ii) The profitability of both businesses
(8 marks)

c) Advise management of both Danyi and Napo on the actions they should now take to improve liquidity and profitability.
(6 marks)

 

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  • 20 Marks

FR – Nov 2021 – L2 – Q4 – Presentation of Financial Statements (IAS 1)

Calculate and analyze financial ratios for Onye Nigeria Plc for the years 2019 and 2020.

Below are the statements of financial position of Onye Nigeria Plc as at October 31, 2020, and an extract from the statement of profit or loss for the year ended on that date.

Onye Nigeria Plc
Statement of Financial Position as at October 31, 2020

Item 2020 (N’000) 2019 (N’000)
Non-current assets
Property, plant and equipment 8,325 6,435
Current assets
Inventories 2,880 2,205
Trade receivables 5,535 4,860
Cash and bank 360 540
Total Assets 17,100 14,040
Equity and Liabilities
Equity
Ordinary share capital 3,600 3,600
Retained earnings 5,603 3,938
Non-current liabilities
10% loan notes 3,600 2,700
Current liabilities
Trade payables 3,375 3,105
Bank overdraft 495 360
Taxation 135 90
Accrued expenses 292 247
Total Equity and Liabilities 17,100 14,040

Onye Nigeria Plc
Extracts from Statement of Profit or Loss for the Year Ended October 31

Item 2020 (N’000) 2019 (N’000)
Revenue 50,400 43,875
Cost of sales (38,070) (30,713)
Profit before taxation 2,093 1,440

Additional information:

  1. The profit before tax is after charging:
    Item 2020 (N’000) 2019 (N’000)
    Depreciation 1,620 1,620
    Interest on loan note 360 270
    Interest on bank overdraft 68 41
    Audit fees 54 45
  2. The latest industry average ratios are as follows:
    Ratio Industry Average
    ROCE 18.50%
    Net profit margin 4.73%
    Gross profit margin 35.23%
    Assets turnover 3.91 times
    Current ratio 1.90:1
    Quick ratio 1.27:1
    Trade receivables period 52 days
    Trade payables period 49 days
    Inventory turnover 18.30 times
    Gearing ratio 32.71%

Required:
a. Calculate the above ratios of Onye Nigeria Plc for the years 2019 and 2020. (10 Marks)
b. Analyze the performance and liquidity of Onye Nigeria Plc for the year 2020. (5 Marks)
c. Comment on the limitations of using accounting ratios in financial statement analysis. (5 Marks)

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  • 20 Marks

MA – Nov 2019 – L2 – Q1a – Performance analysis

Calculation of key financial ratios for GRAT Authority and evaluation of financial performance from 2017 to 2018.

GRAT Authority operates passenger railway services and is responsible for the maintenance of track signaling equipment, and other facilities such as stations. In recent years it has been criticized for providing poor services to the traveling public in terms of punctuality, safety, and the standard of facilities offered to passengers. Last year, GRAT Authority invested over GH¢20 million in new carriages, station facilities, and track maintenance programs in an attempt to address these criticisms.

Summarized financial results for GRAT Authority for the last two years are given below:

Extracts of Statement of Profit or Loss account for the year ended 31 December

Statement of Financial Position as at 31 December

Required:

a) Calculate the following ratios for GRAT Authority for 2017 and 2018, clearly showing your workings.

i) Return on capital employed (ROCE)
ii) Net profit margin
iii) Asset turnover
iv) Current ratio

b) Evaluate the financial performance of the entity in 2017 and 2018 as revealed by the above ratios.

c) Suggest THREE (3) non-financial indicators that could be useful in measuring the performance of a passenger railway service and explain why your chosen indicators are important.

d) Explain the term short-termism and suggest ways in which a long-term view can be encouraged.
(Total: 20 marks)

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  • 20 Marks

FA – Nov 2021 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculation and interpretation of financial ratios, including gross profit margin, net profit margin, ROCE, and liquidity ratios, and assessment of liquidity and profitability.

The following summary information relates to two businesses, Danyi and Napo. Both businesses traded in the same market sector for the year ended 31 December 2020.

Statement of Profit or Loss Accounts for the year ended 31 December 2020:

Required:
a) Calculate the following ratios for Danyi and Napo:
i) Gross profit margin
ii) Net profit margin
iii) Return on capital employed (ROCE)
iv) Current ratio
v) Liquid (acid test) ratio
vi) Inventory turnover
(6 marks)

b) Use the ratios calculated in a) to assess:
i) The liquidity of both businesses
ii) The profitability of both businesses
(8 marks)

c) Advise management of both Danyi and Napo on the actions they should now take to improve liquidity and profitability.
(6 marks)

 

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