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Financial Statement Analysis Question Paper
Financial Statement Analysis
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2008
1
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
BAC 407:FINANCIAL STATEMENT ANALYSIS
DATE: Tuesday 17
th
June 2008 TIME: 11.00am – 1.00pm
INSTRUCTIONS:
Answer ALL questions. Show your work in good form
Q1. Following is the equity section of the G company’s balance sheet and other
information.
G Company
Balance Sheet
Liabilities and Stockholders’ Equity Section
Current liabilities Sh.200,000
Long-term debt (8% interest) Sh.100,000
Common stock sh.10 per Sh.200,000
Premium on common Sh.40,000
Retained earnings Sh.160,000 Sh.400,000
Total Sh.700,000
Other information
Sales during the year Sh.1,050,000
Net income (after taxes of Sh.40,000) Sh.60,000
Required:
(a) Compute rate of return on stockholders’ equity (before tax) [3 marks]
(b) Compute income from operations. [3 marks]
(c) Compute rate of return on assets. [3 marks]
(d) Does G company use leverage effectively? [3 marks]
(e) Compute earnings per share. [3 marks]
(f) Compute book value per share. [3 marks]
2
Q2. From the information below, prepare a statement of sources and uses of cash for
H company for the year ended December 31.
H Company
Working Capital
December 31
Y2 Y1
Cash Sh.3,000 7,000
Accounts receivable 22,000 20,000
Inventory 28,000 22,000
Prepaid expenses 1,000 1,000
Accounts payable 20,000 18,000
Accrued wages 2,000 3,000
Accrued taxes 5,000 6,000
Other accrued expenses 3,000 3,000
Statement of changes in financial position
Year ended December 31, Y2.
Resources provided: Resources applied:
Net income Sh.15,000 Dividends Sh. 7,000
Depreciation 9,000 New equipment 30,000
Long term borrowing 20,000 New treasury stock 3,000
_______ Increase in working capital 4,000
44,000 44,000
[14 marks]
Q3. Q company began business on January 1 of current year, when the price index
was 100. The company issued shares, acquired assets and began operations on
January 1. sales, purchases occur evenly throughout the year.
Q Company
Income Statement for the Year (000’s)
Sales Sh.3,000
Beginning inventory (LIFO) Sh.300
Purchases 1,700
Ending inventory (LIFO) 300
Cost of sales 1,700
Gross margin 1,300
Depreciation 200
Other expenses 900 1,100
Income before taxes 200
Income tax 80
Net income 120
3
Q Company
Balance Sheet
Jan 1 and Dec. 31 current yr.
Jan 1 Dec 31 Jan 1 Dec 31
Cash Sh.500 500 Accounts payable Sh.200 200
Receivables 400 0 Taxes payable 80 0
Inventory (LIFO) 300 300 Common stock 2,000 2,000
Equipment 2,400 2,400 Capital surplus 1,000 1,000
Accumulated Retained
Depreciation 200 0 earnings 120 0
Sh.3,400 3,200 3,400 3,200
Price indices
Beginning of year 100
Average for year 110
End of year 120
Required:
Restate the financial statements for general price level changes. [20 marks]
Q4. ABC company sells distilled water by the liter. The price per liter is Sh.75 and
variable costs are Sh.40 per liter. Fixed costs involved in production are Sh..1
million. The company has Sh.5 million of 8 percent loan outstanding.
Required:
(a) Compute break-even point in liters without financial costs. [2 marks]
(b) Compute break-even point in liters with financial costs. [2 marks]
(c) Determine the degree of operating leverage, financial leverage and
combined leverage at 30,000; 40,000; 50,000; 60,000 liters of water
produced and sold. [12 marks]
(d) What generalizations can you make using the results of (c). [2 marks]
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