Hbc2105:Financial Statement Analysis Question Paper
Hbc2105:Financial Statement Analysis
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE
(a) Define the term financial statement manipulation. (2Marks) (b) Briefly explain the framework of financial statement analysis. (4Marks) (c) Differentiate between Vertical and Horizontal Financial Statement analysis. (4Marks) (d) The following are the summerised accounts of Meru Tree Fellers Company Ltd for the year ended 31st March, 2011.
BALANCE SHEET AS AT 31ST MARCH, 2011
NON CURRENT ASSETS
Freehold Property 480 Plant and Machinery 800 Motor Vehicles 200 Furniture and Fittings 200 1,680
CURRENT ASSETS Stock 1,000 Debtors 400 Investment 120 1,520 3,200
CAPITAL & LIABILITIES
Issued share capital (sulpar) 200 Capital reserve 800 Revenue reserve 400 1,400
NON CURRENT LIABILITIES 10% Debentures 400
CURRENT LIABILITIES Trade Creditors 238.4 Bank overdraft 878.4 Corporation Tax 176 Dividends payable 107.2 1,400 3,200
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2011
Sales (Credit) 4,000 Operating profit before interest 440 Interest on debentures (40) Profit before tax 400 Corporation tax (176) Profit after tax 224 Proposed ordinary dividends (107.2) Retained profits c/d 116.8
Additional Information 1. Purchases for the year amounted to Sh. 2,160,000 while cost of sales was Sh. 3,000,000 2. The market price of the company as at 31st March 2011 was Sh. 5. 3. The company estimates the current value of its freehold property as Sh. 1,000,000
Required: Compute the following ratios for the company: (i) Return on capital employed (2Marks) (ii) Net profit margin (2Marks) (iii) Turnover of capital (2Marks) (iv) Current ratio (2Marks) (v) Liquid ratio/quick ratio (2Marks) (vi) Number of days accounts receivable are outstanding (2Marks) (vii) Proprietory ratio (2Marks) (viii) Stock turnover ratio (2Marks)
(ix) Dividend yield ratio (2Marks) (x) Price earning ratio (2Marks)
QEUSTION TWO (a) Define the term Dupont analysis of financial statement. (5Marks) (b) Distinguish between original 3part approach and the extended 5 part system of Dupont analysis. (5Marks) (c) The following information is extracted for the books of Tigania West Industries.
Balance sheet extract and P & L extract. Msus Year 2009 2010 2011 Net income 42 44.6 43.8 Sales 610 700 820 Equity 238 248 252 Assets 460 580 700
Required: Using the original 3 part Du pont analysis, decompose Return on Equity (ROE), and comment on trends in company performance. (10Marks)
QUESTION THREE (a) Define the term Economic Value Added (EVA) (2Marks) (b) Write short notes on the following terms: Trend analysis (3Marks) Cross sectional analysis (3Marks) Sell off (3Marks) Spin off (3Marks) Equity curve outs (3Marks) Informal reorganisation (3Marks)
QUESTION FOUR (a) Define the term efficient market hypothesis. (4Marks) (b) Explain the main forms of market efficiency (12Marks) (c) The capital market has no memory. Discuss. (4Marks)
QUESTION FIVE (a) Define the term financial distress. (1Marks) (b) List four indicators of financial distress (4Marks) (c) The following financial statements are extracted from the books of Ntugi Ltd a manufacturing company.
BALANCE SHEET AS AT 31ST DECEMBER 2011
NON CURRENT ASSETS Shs Shs
Premises 1 Plant 5 Equipment 8 14
CURRENT ASSETS Cash 0.4 Debtors 3 Stock 4 7.4 21.4 CAPITAL & LIABILITIES
Preference shares (100,000 shares) 1 Ordinary shares (500,000 shares) 1 Share premium 2 Retained earnings 1.4 5.4
NON CURRENT LIABILITIES Mortgages 4 Debentures 6 10
CURRENT LIABILITIES Creditors 5 Notes payable 1 6 21.4
INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2010
Msus
Sales 6
Less cost of sales (3.5)
Less selling and administration expenses (1)
EBIT 1.5
Less Interest (1.1)
EBT 0.4
Less Tax (30%) (0.12)
EAT (Net Income) 0.28
Required
– score for Ntugi Ltd and interpret its meaning.
Hint: Z= 1.2 X1+ 1.4X2 + 3.3X3+ 0.6X4+ 0.999X5 (15Marks)
More Question Papers