- 20 Marks
FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management
Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.
Question
Ozoigbondu Nigeria Limited is a company that is into buying and selling of plastic containers. The company is financed by a capital of ₦15 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively.
The Company has been in trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.
The company’s policy on sales is to ensure that sales are collected as follows: (i) Cash sales is 40% of the monthly sales. (ii) The balance of the month’s sales is to be collected in the month following sales.
The policy on purchases is in agreement with the supplier’s policy which is to pay for all supplies in the month following. The company’s stock policy is to reserve 30% of the month’s purchases as closing inventory.
The following information is available for the five years 2010 to 2014:
| 2010 | 2011 | 2012 | 2013 | 2014 | |
|---|---|---|---|---|---|
| Monthly Sales | 3,400,000 | 3,600,000 | 4,200,000 | 4,800,000 | 7,200,000 |
| Monthly Purchases | 2,000,000 | 2,400,000 | 2,800,000 | 3,200,000 | 4,800,000 |
| Monthly Salaries | 350,000 | 350,000 | 430,000 | 430,000 | 480,000 |
| Monthly Rent | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| Monthly Cash Expenses | 200,000 | 220,000 | 240,000 | 280,000 | 360,000 |
Additional Information: (i) The company purchased a motor vehicle in July 2013 which was paid for in September 2013. The cost of the motor vehicle was ₦5,000,000.
(ii) Annual depreciation for the motor vehicle is 20%.
(iii) The Cash Balance as at 31st December 2011 was ₦4,000,000.
(iv) The company’s salaries, rent, and expenses were paid in the month they were due.
Required: a. Prepare a Profitability Statement for 2012, 2013, and 2014. (10 Marks)
b. Prepare a Cash Flow Statement for 2012, 2013, and 2014. (7 Marks)
c. Determine and comment on the liquidity ratio (current ratio) for 2014. (2 Marks)
d. Compute the gearing ratio. (1 Mark)
Find Related Questions by Tags, levels, etc.
- Tags: Cash Flow, Financial Ratios, Financial Statement Analysis, Gearing, Liquidity, Profit Analysis
- Level: Level 2
- Topic: Introduction to Performance Management
- Series: MAY 2015