Operating Profit Margin – NBC Institute

MA – April 2022 – L2 – Q1a – Divisional performance

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

Question

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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Turnover, Bonus Evaluation, Forecasting, Operating Profit Margin, ROCE
Level: Level 2

Topic: Divisional Performance
Series: APR 2023

FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and report on the reasons for Ziekah Ltd's deteriorating cash flow.

Question

You are the financial accountant for Ziekah Ltd, a company that manufactures household furniture. Ziekah Ltd has experienced both a reduction in sales revenue and cash flow during the last financial period. You are provided with the following information regarding Ziekah Ltd for the years ended 31 October 2022 and 2023:

Statement of Profit or Loss for Years Ended

	2023 (GH¢000)	2022 (GH¢000)
Revenue	1,000	1,400
Cost of sales	(600)	(700)
Gross profit	400	700
Operating expenses	(150)	(280)
Operating profit	250	420
Interest on debentures	(60)	(100)
Profit before tax	190	320
Tax	(24)	(40)
Profit after tax	166	280

Statement of Financial Position as at

	2023 (GH¢000)	2022 (GH¢000)
Non-current assets
Property, plant, and equipment	2,320	2,400
Intangible assets	1,300	800
Total non-current assets	3,620	3,200
Current assets
Inventory	82	78
Trade receivables	138	134
Bank	–	300
Total current assets	220	512
Total assets	3,840	3,712
Equity and liabilities
Issued share capital	1,600	1,600
Retained earnings	1,224	1,058
Total equity	2,824	2,658
Non-current liabilities
10% Debentures	600	1,000
Current liabilities
Bank overdraft	342	–
Trade payables	74	54
Total current liabilities	416	54
Total equity and liabilities	3,840	3,712

Required:

a) Calculate the following ratios for both years:

i) Operating profit margin.
ii) Return on capital employed.
iii) Acid test ratio.
iv) Receivable days.

(8 marks)

b) Write a report to the Managing Director of Ziekah Ltd explaining why the cash flow of the company has deteriorated during the current financial year. You should base your report on both the ratios calculated in (a) and any additional information provided in the financial statements.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acid Test Ratio, Financial Analysis, Operating Profit Margin, Receivable Days, Return on Capital Employed
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAR 2024

MA – April 2022 – L2 – Q1a – Divisional performance

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

Question

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 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).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Turnover, Bonus Evaluation, Forecasting, Operating Profit Margin, ROCE
Level: Level 2

Topic: Divisional Performance
Series: APR 2023

FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and report on the reasons for Ziekah Ltd's deteriorating cash flow.

Question

Statement of Profit or Loss for Years Ended

	2023 (GH¢000)	2022 (GH¢000)
Revenue	1,000	1,400
Cost of sales	(600)	(700)
Gross profit	400	700
Operating expenses	(150)	(280)
Operating profit	250	420
Interest on debentures	(60)	(100)
Profit before tax	190	320
Tax	(24)	(40)
Profit after tax	166	280

Statement of Financial Position as at

	2023 (GH¢000)	2022 (GH¢000)
Non-current assets
Property, plant, and equipment	2,320	2,400
Intangible assets	1,300	800
Total non-current assets	3,620	3,200
Current assets
Inventory	82	78
Trade receivables	138	134
Bank	–	300
Total current assets	220	512
Total assets	3,840	3,712
Equity and liabilities
Issued share capital	1,600	1,600
Retained earnings	1,224	1,058
Total equity	2,824	2,658
Non-current liabilities
10% Debentures	600	1,000
Current liabilities
Bank overdraft	342	–
Trade payables	74	54
Total current liabilities	416	54
Total equity and liabilities	3,840	3,712

Required:

a) Calculate the following ratios for both years:

i) Operating profit margin.
ii) Return on capital employed.
iii) Acid test ratio.
iv) Receivable days.

(8 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acid Test Ratio, Financial Analysis, Operating Profit Margin, Receivable Days, Return on Capital Employed
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAR 2024

Question Tag: Operating Profit Margin

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MA – April 2022 – L2 – Q1a – Divisional performance

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

FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and report on the reasons for Ziekah Ltd's deteriorating cash flow.

MA – April 2022 – L2 – Q1a – Divisional performance

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

FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and report on the reasons for Ziekah Ltd's deteriorating cash flow.

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MA – April 2022 – L2 – Q1a – Divisional performance

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

You're reporting an error for "MA – April 2022 – L2 – Q1a – Divisional performance"

FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and report on the reasons for Ziekah Ltd's deteriorating cash flow.

You're reporting an error for "FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)"

MA – April 2022 – L2 – Q1a – Divisional performance

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

You're reporting an error for "MA – April 2022 – L2 – Q1a – Divisional performance"

FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and report on the reasons for Ziekah Ltd's deteriorating cash flow.

You're reporting an error for "FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)"

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