Question Tag: ROCE

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CR – Nov 2018 – L3 – SB – Q3 – Business Combinations (IFRS 3)

Evaluation of Abana and Doha as potential acquisition targets using adjusted financial ratios.

Question

Banny Plc. (Banny) is a diversified company that has achieved its present size through vertical and horizontal acquisition. The directors have identified two potential target entities for acquisition. The first is Abana Limited (Abana), which operates a cement business near Offa, Kwara State. The second is Doha Limited (Doha), also in the cement industry, located near Oturukpo, Benue State. Banny has obtained copies of their audited financial statements, along with additional information notes.

Statement of Profit or Loss for the Year Ended December 31, 2017

Item	Abana (₦’m)	Doha (₦’m)
Revenue	136,000	132,000
Cost of sales	(84,000)	(91,900)
Gross profit	52,000	40,100
Other operating expenses	(36,000)	(28,000)
Profit from operations	16,000	12,100
Finance costs	(6,000)	(8,000)
Profit before tax	10,000	4,100
Income tax expense	(3,000)	(2,000)
Net profit for the period	7,000	2,100

Statement of changes in equity for the year ended December 31, 2017

Statement of financial position as at December 31, 2017

Additional Notes:

Doha revalued its non-current assets for the first time following IFRS adoption on January 1, 2017. Abana maintains its non-current assets at historical cost.
Banny uses the following ratios to evaluate acquisition targets: Return on Capital Employed (ROCE), Gross Profit Margin, Turnover on Capital Employed, and Leverage.

Required:

a. Compute adjustments for the revaluation of property, plant, and equipment, making Abana and Doha comparable for analysis. (14 Marks)

b. Calculate the four ratios (ROCE, Gross Profit Margin, Turnover on Capital Employed, and Leverage) after adjustments. (4 Marks)

c. Advise Banny on the better acquisition target based on adjusted ratios. (2 Marks)

Answer

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Tags: Acquisition, Financial Ratios, Leverage, Profit margin, ROCE, Valuation
Level: Level 3

Topic: Business Combinations (IFRS 3)

PM – Nov 2024 – L2 – Q6 – Divisional Performance Measurement

Comparative analysis of Owerri and Isiekenesi event centers based on financial performance metrics

Question

Omegboje and company is a medium-scale outfit that specializes in the rental business in Owerri and Isiekenesi towns. The company operates a large event center in each city, supplying chairs, tables, and canopies for both outdoor and some indoor events.

Each event center manager has some independence in operations and earns a performance bonus of 10% of sales if they achieve more than the standard return on capital employed (ROCE) of 50%.

The following financial data is available for the two centers for the years ending December 31, 2020, and 2019:

Additional Information:

Revenue is derived from rentals and ancillary services.
Both centers have a cost of capital of 15%.
Ignore taxation and inflation.

Required:

a. Discuss the relative performance of the two centers based on: i. Return on Capital Employed (ROCE) ii. Residual Income iii. Profit Margin iv. Current Ratio v. Quick Ratio vi. Gearing Ratio vii. Interest Cover
(7 Marks)

b. Compute the performance bonus for the centers (if any), showing your workings.
(4 Marks)

c. Briefly outline the role of a Management Accountant in project management.
(4 Marks)

Answer

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Tags: Current Ratio, Gearing Ratio, Interest Cover, Liquidity Ratios, Profit margin, Quick Ratio, Residual Income, ROCE
Level: Level 2

Topic: Divisional Performance Measurement

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Question

Pakex is a division of an automobile group that has five years remaining on a leased premises in which it sells self-assembled motorcycles. The management is proposing an investment of ₦48 million on immediate improvements to the interior of the premises in order to stimulate sales by creating a more effective selling environment. The following information is available:

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

(iv) The management staff turnover at Pakex division is high. The division’s investment decisions and management performance measurement are currently based on the figures for the first year of the proposal.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year	1	2	3	4	5
Increase in Revenue	56	40	40	24	16

All other factors are expected to remain the same.

Required: a. Prepare a summary of the statement of the management’s investment proposal for years 1 to 5 showing Residual Income and Return on Capital Employed for each year using the straight-line depreciation method. (10 Marks)
b. Comment on the use of the figures from the Statement in (a) above as a decision-making and management performance measure. (4 Marks)
c. Calculate the Residual Income and Return on Capital Employed for year 1 using the alternative proposal. (6 Marks)

Answer

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Tags: Investment Appraisal, Management Performance, Residual Income, ROCE, Straight Line Depreciation
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

PM – Nov 2014 – L2 – Q3 – Divisional Performance Measurement

Compare financial performance of Purity Nigeria Ltd. and Benchmark Co. Ltd using key financial ratios and offer strategic improvement recommendations.

Question

Purity Nigeria Limited is a company that produces table water. The company’s board
plans to restructure its operations with the aim of boosting its market share and
profitability.

The financial results of Purity Nigeria Limited and Bench Mark Co. Limited, which is
the leader in the industry, are as follows:

Operating Statements for the year ended 31 December, 2013

Summarised Statements of Financial Position as at 31 December, 2013.

Required:

a. Compute the following performance indices for both companies:
i Profit margin
ii. Asset turnover
iii. Returns On Capital Employed (ROCE)
iv. Current ratio
v. Debt-equity ratio (5 Marks)

b. Compare and analyse the performance of the two companies computed in (a)
above and explain what the board of Purity Nigeria Limited needs to do to
achieve their objectives. (10 Marks)

c. What other non-financial measures can influence the decision of the board of
Purity Nigeria Limited? (5 Marks)

Answer

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Tags: Asset Turnover, Benchmarking, Current Ratio, Debt-equity ratio, Profit margin, ROCE
Level: Level 2

Topic: Divisional Performance Measurement

PM – May 2017 – L2 – SA – Q1 – Working Capital Management

Calculate KPIs for Kardex’s products, perform a PEST analysis, and comment on KPI effectiveness in external conditions.

Question

Kardex Industries Nigeria Limited is a subsidiary of a large manufacturing company based in China (Kardex International). The company manufactures washing machines, table gas cookers, and refrigerators which are being sold by the subsidiary in Nigeria. Demand for the company’s product is growing, especially among the growing middle-class population, until recently when the company started experiencing some hiccups due to the economic recession and stiff competition.
- The company currently sells two types of washing machines in Nigeria:
  - Wash Up: A basic product comparable to local competitors.
  - Perfect Wash: A premium product similar to Kardex’s offerings in developed countries.
- The competitive environment in Nigeria is evolving quickly. Apart from Kardex, two other companies offer similar machines in the market. One competitor produces machines similar to “Wash Up” locally with tax incentives, while the other is planning to set up a plant for specialized washing machines akin to Kardex’s “Perfect Wash.”
- Kardex International’s mission is to be the “industry leader.” The Kardex Board has identified critical success factors (CSFs) for the Nigerian subsidiary:
  - Market leadership.
  - Profit maximization and shareholder wealth within acceptable risk.
  - Brand image maintenance as a top-of-the-range product.
- The Board suggests using the following KPIs for each product:
  - Total profit, average sales price per unit, contribution per unit, market share, margin of safety, return on capital employed (ROCE), and total quality costs.

Appendix 1
Financial Year Data for Nigerian Subsidiary:

Requirements:

a. Calculate the Key Performance Indicators (KPIs) for Kardex, including:

Total Profit
Average Sales Price per Unit
Contribution per Unit
Market Share
Margin of Safety
Return on Capital Employed (ROCE)
Quality Costs (20 Marks)

b. Use a PEST Analysis to identify external environmental issues affecting Kardex and discuss the effectiveness of the KPIs in addressing these issues.

Answer

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Tags: KPI, Margin of Safety, Market Share, Profitability analysis, Quality Costs, ROCE
Level: Level 2

Topic: Working Capital Management
Series: MAY 2017

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.

Question

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:

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

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

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)

Answer

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Tags: Current Ratio, Financial Ratios, Net Profit Margin, Performance Analysis, ROCE
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)
Series: NOV 2021

PM – May 2019 – L2 – Q3 – Divisional Performance Measurement

Calculate and analyze ROCE for Peterpan's subsidiaries and discuss performance excluding intra-group transactions.

Question

Peterpan Nigeria Limited is a holding company with two subsidiaries manufacturing similar products in different regions of the country. These are Peterpan (Eastern) Nigeria Limited and Peterpan (Western) Nigeria Limited. Return on capital employed (ROCE) is used as the group’s performance measure and is also used to determine divisional managers’ bonuses. The results of the two companies and of the holding company for the year ended 31 December, 2018, and the statement of financial position as at that date are as follows:

Item	Western (₦000)	Eastern (₦000)	Peterpan (₦000)
Revenue	400,000	440,000	792,941
Cost of sales	(340,000)	(330,000)	(630,000)
Gross profit	60,000	110,000	162,941
Administrative costs	(20,000)	(60,000)	(80,000)
Interest payable	(20,000)	–	(20,000)
Pre-tax profit	20,000	60,000	62,941

Non-current assets:

Item
Original cost	2,000,000	300,000	3,000,000
Accumulated depreciation	(1,180,800)	(320,000)	(2,213,568)
Net book value	819,200	120,000	786,432
Net current assets	100,000	120,000	906,432
Total assets	919,200	906,432	1,825,632
Non-current borrowings	300,000	–	300,000
Shareholders’ fund	619,200	786,432	1,525,632
Capital employed	919,200	906,432	1,825,632

Additional Information:

During the year, Eastern Limited sold goods to Western Limited that had cost Eastern Limited ₦20,000,000. The transactions relating to this sale have been eliminated from the holding company’s results stated above.
Both companies use the same depreciation policy of 20% per annum on a reducing balance basis for their non-current assets. Neither company made any additions or disposals of non-current assets during the year.
During the last board meeting of the holding company, it was decided that the holding company should impose a transfer pricing policy for transfers between the two subsidiaries.

Required:

a. Calculate the return on capital employed (ROCE) ratios for each of the two subsidiaries for the year and analyze these into their secondary ratio components of: i. Pre-Tax Profit % ii. Asset Turnover (3 Marks)

b. i. Calculate Eastern Limited’s gross profit margin on its internal sales and compare this to the gross profit margin on its external sales. (2 Marks)
ii. Discuss the performance of the two subsidiaries excluding the effects of the intra-group transactions. (9 Marks)

c. Explain THREE factors that management should consider when setting the transfer pricing policy. (6 Marks)
(Total 20 Marks)

Answer

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Tags: Financial Performance, Profitability, ROCE, Subsidiaries, Transfer Pricing
Level: Level 2

Topic: Divisional Performance Measurement
Series: MAY 2019

SCS – MAR 2024 – L3 – Q5a – Financial management

Calculate various financial ratios including ROCE, EPS, DPS, and TSR based on given financial data.

Question

With reference to the information in Option One available to Prestige as presented by Professor Joseph Laing, a business consultant, calculate the following:

i) Return on Capital Employed (ROCE) (1 mark)
ii) Earnings Per Share (EPS) (1 mark)
iii) Dividend Per Share (DPS) (2 marks)
iv) Total Shareholders Return (TSR) (2 marks)
v) Explain the difference between ROCE and Accounting Rate of Return, their essential features, and relationship (4 marks)

Answer

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Tags: DPS, EPS, Financial Ratios, ROCE, TSR
Level: Level 3

Topic: Financial management
Series: MAR 2024

PM – Mar/Jul 2020 – L2 – Q4 – PM – Mar/Jul 2020 – L2 – Q4 – Economic Value Added (EVA) and Regulatory ROCE for Ibok Power Nigeria Limited

Evaluate the performance of Ibok Power Nigeria Limited using EVA and regulatory ROCE, discussing impacts on performance management.

Question

Ibok Power Nigeria Limited (IPN) is a power utility company providing power distribution services to the public and businesses of Southern Nigeria. The company was formed when the government-owned Power Holding Company of Nigeria was broken up into regional utility companies (one of which was IPN) and sold into private ownership over four years ago.

As a vital utility for the economy of Nigeria, power services are a government-regulated industry. The regulator is principally concerned that IPN does not abuse its monopoly position in the regional market to unjustifiably increase prices. The majority of services (80%) are controlled by the regulator, who sets an acceptable return on capital employed (ROCE) level and ensures that the pricing of IPN within these areas does not breach this level. The remaining services, such as the provision of meters and contract repair services, are unregulated, and IPN can charge a market rate for these. The regulator calculates its ROCE figure based on its own valuation of the capital assets being used in regulated services and the operating profit from those regulated services.

The target pre-tax ROCE set by the regulator is 6%. If IPN were to breach this figure, then the regulator could fine the company. In the past, other such companies have paid fines amounting to millions of naira.

The board of IPN is trying to drive the performance for the benefit of shareholders. This is a new experience for many at IPN, who left the public sector four years ago. In order to better communicate the objective of maximising shareholders’ wealth, the board has decided to introduce economic value added (EVA) as the key performance indicator.

The finance director has provided the following financial information for the year ending September 30, 2018:
Ibok Power Services

Notes:
(i)
(ii) Economic depreciation is assessed to be N41.5bn in 2018. In previous years, economic and accounting depreciation were assumed to be the same.
(iii) Tax is the cash paid in the current year (N4.5bn) and includes an adjustment of N0.25bn for deferred tax provisions. No deferred tax balance existed before 2018.
(iv) The provision for doubtful debts was N2.25bn in 2018.
(v) The research and development project is not capitalised and is expected to benefit the company in the long-term. 2018 is the first year of this project.
(vi) IPN’s cost of capital is as follows:
Equity: 16%
Debt (pre-tax): 5%
(vii) Capital structure: 40% equity, 60% debt.

Required:
(a) Evaluate the performance of IPN using EVA. (13 Marks)
(b) Assess whether IPN meets its regulatory ROCE target and comment on the impact of such a constraint on performance management at IPN. (7 Marks)

Answer

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Tags: Economic Value Added, Finance, Performance Measurement, Profitability analysis, Regulated Industries, ROCE, Utility Company
Level: Level 2

FR – Aug 2022 – L2 – Q4 – Financial Statement Analysis

Calculate various financial ratios for Pat Plc and compare them to industry averages and Write a report to assess the financial performance and position of Pat Plc relative to industry standards based on the calculated ratios.

Question

Pat Plc is a listed Ghanaian company that produces textile prints for local and African markets. During the year ended 31 March 2022, the following financial information was available:

Gross profit: GH¢12,150
Cost of sales: GH¢77,850
Operating profit before interest and tax: GH¢7,130
Finance cost: GH¢920
Tax charged to profit or loss: GH¢1,400
Inventory turnover: 3.6 times
Dividend per share: GH¢0.36
Dividend yield: 6%

Extracts from the Statement of Financial Position as at 31 March 2022:

Required:
a. Based on the information provided, compute the following ratios for Pat Plc:
i) Profit (after tax) margin
ii) Current ratio
iii) Return on Capital Employed (ROCE)
iv) Receivables period
v) Price/Earnings ratio
vi) Debt/Equity ratio

b. Using the ratios computed in Question 4a, write a report to the Board of Directors of Pat Plc assessing the financial performance and financial position of the entity, relative to its industry.

Answer

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Tags: Debt-equity ratio, Liquidity Ratios, P/E Ratio, Profitability Ratios, Ratio Analysis, Receivables Period, ROCE
Level: Level 2

Topic: Financial Statement Analysis
Series: AUG 2022

CR – Nov 2018 – L3 – SB – Q3 – Business Combinations (IFRS 3)

Evaluation of Abana and Doha as potential acquisition targets using adjusted financial ratios.

Question

Statement of Profit or Loss for the Year Ended December 31, 2017

Item	Abana (₦’m)	Doha (₦’m)
Revenue	136,000	132,000
Cost of sales	(84,000)	(91,900)
Gross profit	52,000	40,100
Other operating expenses	(36,000)	(28,000)
Profit from operations	16,000	12,100
Finance costs	(6,000)	(8,000)
Profit before tax	10,000	4,100
Income tax expense	(3,000)	(2,000)
Net profit for the period	7,000	2,100

Statement of changes in equity for the year ended December 31, 2017

Statement of financial position as at December 31, 2017

Additional Notes:

Doha revalued its non-current assets for the first time following IFRS adoption on January 1, 2017. Abana maintains its non-current assets at historical cost.
Banny uses the following ratios to evaluate acquisition targets: Return on Capital Employed (ROCE), Gross Profit Margin, Turnover on Capital Employed, and Leverage.

Required:

a. Compute adjustments for the revaluation of property, plant, and equipment, making Abana and Doha comparable for analysis. (14 Marks)

b. Calculate the four ratios (ROCE, Gross Profit Margin, Turnover on Capital Employed, and Leverage) after adjustments. (4 Marks)

c. Advise Banny on the better acquisition target based on adjusted ratios. (2 Marks)

Answer

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Tags: Acquisition, Financial Ratios, Leverage, Profit margin, ROCE, Valuation
Level: Level 3

Topic: Business Combinations (IFRS 3)

PM – Nov 2024 – L2 – Q6 – Divisional Performance Measurement

Comparative analysis of Owerri and Isiekenesi event centers based on financial performance metrics

Question

Each event center manager has some independence in operations and earns a performance bonus of 10% of sales if they achieve more than the standard return on capital employed (ROCE) of 50%.

The following financial data is available for the two centers for the years ending December 31, 2020, and 2019:

Additional Information:

Revenue is derived from rentals and ancillary services.
Both centers have a cost of capital of 15%.
Ignore taxation and inflation.

Required:

b. Compute the performance bonus for the centers (if any), showing your workings.
(4 Marks)

c. Briefly outline the role of a Management Accountant in project management.
(4 Marks)

Answer

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Tags: Current Ratio, Gearing Ratio, Interest Cover, Liquidity Ratios, Profit margin, Quick Ratio, Residual Income, ROCE
Level: Level 2

Topic: Divisional Performance Measurement

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Question

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year	1	2	3	4	5
Increase in Revenue	56	40	40	24	16

All other factors are expected to remain the same.

Answer

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Tags: Investment Appraisal, Management Performance, Residual Income, ROCE, Straight Line Depreciation
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

PM – Nov 2014 – L2 – Q3 – Divisional Performance Measurement

Compare financial performance of Purity Nigeria Ltd. and Benchmark Co. Ltd using key financial ratios and offer strategic improvement recommendations.

Question

Purity Nigeria Limited is a company that produces table water. The company’s board
plans to restructure its operations with the aim of boosting its market share and
profitability.

The financial results of Purity Nigeria Limited and Bench Mark Co. Limited, which is
the leader in the industry, are as follows:

Operating Statements for the year ended 31 December, 2013

Summarised Statements of Financial Position as at 31 December, 2013.

Required:

a. Compute the following performance indices for both companies:
i Profit margin
ii. Asset turnover
iii. Returns On Capital Employed (ROCE)
iv. Current ratio
v. Debt-equity ratio (5 Marks)

b. Compare and analyse the performance of the two companies computed in (a)
above and explain what the board of Purity Nigeria Limited needs to do to
achieve their objectives. (10 Marks)

c. What other non-financial measures can influence the decision of the board of
Purity Nigeria Limited? (5 Marks)

Answer

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Tags: Asset Turnover, Benchmarking, Current Ratio, Debt-equity ratio, Profit margin, ROCE
Level: Level 2

Topic: Divisional Performance Measurement

PM – May 2017 – L2 – SA – Q1 – Working Capital Management

Calculate KPIs for Kardex’s products, perform a PEST analysis, and comment on KPI effectiveness in external conditions.

Question

Kardex Industries Nigeria Limited is a subsidiary of a large manufacturing company based in China (Kardex International). The company manufactures washing machines, table gas cookers, and refrigerators which are being sold by the subsidiary in Nigeria. Demand for the company’s product is growing, especially among the growing middle-class population, until recently when the company started experiencing some hiccups due to the economic recession and stiff competition.
- The company currently sells two types of washing machines in Nigeria:
  - Wash Up: A basic product comparable to local competitors.
  - Perfect Wash: A premium product similar to Kardex’s offerings in developed countries.
- The competitive environment in Nigeria is evolving quickly. Apart from Kardex, two other companies offer similar machines in the market. One competitor produces machines similar to “Wash Up” locally with tax incentives, while the other is planning to set up a plant for specialized washing machines akin to Kardex’s “Perfect Wash.”
- Kardex International’s mission is to be the “industry leader.” The Kardex Board has identified critical success factors (CSFs) for the Nigerian subsidiary:
  - Market leadership.
  - Profit maximization and shareholder wealth within acceptable risk.
  - Brand image maintenance as a top-of-the-range product.
- The Board suggests using the following KPIs for each product:
  - Total profit, average sales price per unit, contribution per unit, market share, margin of safety, return on capital employed (ROCE), and total quality costs.

Appendix 1
Financial Year Data for Nigerian Subsidiary:

Requirements:

a. Calculate the Key Performance Indicators (KPIs) for Kardex, including:

Total Profit
Average Sales Price per Unit
Contribution per Unit
Market Share
Margin of Safety
Return on Capital Employed (ROCE)
Quality Costs (20 Marks)

b. Use a PEST Analysis to identify external environmental issues affecting Kardex and discuss the effectiveness of the KPIs in addressing these issues.

Answer

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Tags: KPI, Margin of Safety, Market Share, Profitability analysis, Quality Costs, ROCE
Level: Level 2

Topic: Working Capital Management
Series: MAY 2017

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.

Question

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:

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

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

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%

Answer

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Tags: Current Ratio, Financial Ratios, Net Profit Margin, Performance Analysis, ROCE
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)
Series: NOV 2021

PM – May 2019 – L2 – Q3 – Divisional Performance Measurement

Calculate and analyze ROCE for Peterpan's subsidiaries and discuss performance excluding intra-group transactions.

Question

Item	Western (₦000)	Eastern (₦000)	Peterpan (₦000)
Revenue	400,000	440,000	792,941
Cost of sales	(340,000)	(330,000)	(630,000)
Gross profit	60,000	110,000	162,941
Administrative costs	(20,000)	(60,000)	(80,000)
Interest payable	(20,000)	–	(20,000)
Pre-tax profit	20,000	60,000	62,941

Non-current assets:

Item
Original cost	2,000,000	300,000	3,000,000
Accumulated depreciation	(1,180,800)	(320,000)	(2,213,568)
Net book value	819,200	120,000	786,432
Net current assets	100,000	120,000	906,432
Total assets	919,200	906,432	1,825,632
Non-current borrowings	300,000	–	300,000
Shareholders’ fund	619,200	786,432	1,525,632
Capital employed	919,200	906,432	1,825,632

Additional Information:

During the year, Eastern Limited sold goods to Western Limited that had cost Eastern Limited ₦20,000,000. The transactions relating to this sale have been eliminated from the holding company’s results stated above.
Both companies use the same depreciation policy of 20% per annum on a reducing balance basis for their non-current assets. Neither company made any additions or disposals of non-current assets during the year.
During the last board meeting of the holding company, it was decided that the holding company should impose a transfer pricing policy for transfers between the two subsidiaries.

Required:

c. Explain THREE factors that management should consider when setting the transfer pricing policy. (6 Marks)
(Total 20 Marks)

Answer

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With reference to the information in Option One available to Prestige as presented by Professor Joseph Laing, a business consultant, calculate the following:

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FR – Aug 2022 – L2 – Q4 – Financial Statement Analysis

Calculate various financial ratios for Pat Plc and compare them to industry averages and Write a report to assess the financial performance and position of Pat Plc relative to industry standards based on the calculated ratios.

Question

Pat Plc is a listed Ghanaian company that produces textile prints for local and African markets. During the year ended 31 March 2022, the following financial information was available:

Extracts from the Statement of Financial Position as at 31 March 2022:

b. Using the ratios computed in Question 4a, write a report to the Board of Directors of Pat Plc assessing the financial performance and financial position of the entity, relative to its industry.

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Question Tag: ROCE

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Calculate various financial ratios including ROCE, EPS, DPS, and TSR based on given financial data.

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

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Evaluate the performance of Ibok Power Nigeria Limited using EVA and regulatory ROCE, discussing impacts on performance management.

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