- Three years ago, Mrs. Rehema Waziri was retrenched from the Civil Service. She invested substantially all her terminal benefits in the shares of ABC Ltd.,...(Solved)
Three years ago, Mrs. Rehema Waziri was retrenched from the Civil Service. She invested substantially all her terminal benefits in the shares of ABC Ltd., a company quoted on the stock exchange. The dividend payments from this investment makes up a significant position of Mrs Waziri’s income. She was alarmed when ABC Ltd. dropped its year 2001 dividend to Sh.1.25 per share from Sh.1.75 per share which it had paid in the previous two years.
Mrs Waziri has approached you for advice and you have gathered the information given below regarding the financial condition of ABC Ltd. and the finance sector as a whole.
ABC Ltd. Balance Sheets as at 31 October
Notes:
1. Industry ratios have been roughly constant for the past four years.
2. Inventory turnover, total assets turnover and fixed assets turnover are based on the year-end
balance sheet figures.
Required:
(a) The financial ratios for ABC Ltd for the past three years corresponding to industry ratios given above.
(b) Arrange the ratios calculated in (a) above in columnar form and summarise the strengths and weaknesses revealed by these ratios based on:
(i) Trends in the firm’s ratios
(ii) Comparison with industry averages.
(The summary should focus on the liquidity, profitability and turnover ratios).
Date posted: May 5, 2022. Answers (1)
- The management of Afro Quatro Ltd. want to establish the amount of financial needs for the next two years. The balance sheet of the firm...(Solved)
The management of Afro Quatro Ltd. want to establish the amount of financial needs for the next two years. The balance sheet of the firm as at 31 December 2001 is as follows:
Date posted: May 5, 2022. Answers (1)
- Madawa Chemicals Ltd. is in the process of forecasting its financial needs for the coming year ending 31 October 2003. The company attained a turnover...(Solved)
Madawa Chemicals Ltd. is in the process of forecasting its financial needs for the coming year ending 31 October 2003. The company attained a turnover ofSh.300 million for the current year ended 31 October 2002.
The following are the summarized financial statements of the company for the year ended 31 October 2001:
From past experience, it has been disclosed that each additional Sh.1 of sales made by the company
requires, on average, a total investment in fixed assets, stocks and debtors of Sh.1.50. The Sh.1
additional sales also results in the generation of automatic financing of 40 cents as various creditors
spontaneously arise with the increase in sales.
The net profit margin after tax and the dividends payout ratio which apply for the year ended 31
October 2002 will also be relevant into the foreseeable future.
Required:
a) The amount of external finance that will be needed during the year ending 31 October
2003 if sales are expected to increase by 15% in the year.
b) The maximum expected sales growth that can be achieved in the year ending 31
October 2003 if only internally generated funds are used.
(c) The maximum growth in sales that can be achieved in the year ending 31 October 2003 if the
company wishes to maintain its current level of financial gearing.
(d) Briefly comment upon the weaknesses of the method of forecasting used above.
Date posted: May 5, 2022. Answers (1)
- The following information represents the financial position and financial results of AMETEX limited for the year ended 31 December 2002.(Solved)
The following information represents the financial position and financial results of AMETEX limited for the year ended 31 December 2002.
Additional Information
1. The company’ ordinary shares are selling at sh. 20 in the stock market
2. The company has a constant dividend payout of 10%
Required:
i) Acid test ratio
ii) Operating Ratio
iii) Return on total capital employed
iv) Price earnings ratio
v) Interest coverage ratio
vi) Total assets turnover
Determine the working capital cycle for the company.
Date posted: May 5, 2022. Answers (1)
- Pokea Cellphone Operators Ltd. started operations on 1 September 2002. The company raised the required equity capital of Sh.65million and debt at an annual rate...(Solved)
Pokea Cellphone Operators Ltd. started operations on 1 September 2002. The company raised the required equity capital of Sh.65million and debt at an annual rate of interest of 18% before commencing business. Given below are some statistics extracted from the books of the company in respect to the financial statements prepared to 31 August 2003
Required:
a) In respect of the year ended 31 August 2003, you are required to prepare the company’s:
i) Trading Profit and Loss account
ii) Balance Sheet
b) The following statistics have been provided with respect to the industry in which the company operates:
Acid test ratio 1.2:1
Return on equity 21%
Capital gearing ratio 36%
Required:
Comment on the performance of the company relative to these industry statistics
Date posted: May 5, 2022. Answers (1)
- Ushindi Limited presented the following financial statements on 30 June 2004
Additional Information
1. An analysis of the industry in which the company operates reveals the following...(Solved)
Ushindi Limited presented the following financial statements on 30 June 2004
Additional Information
1. An analysis of the industry in which the company operates reveals the following industrial
average
Current Ratio 1:5:1
Quick Ratio 0:8:1
2. The purchases for the year were Sh. 2,160,000 while the cost of sales was Sh. 3,000,000.
3. The market price of the company’s shares as at 30 June 2004 was Sh. 5
Required:
a) Compute the following ratios for Ushindi Limited
i) Return on capital employed
ii) Turnover of capital
iii) Operating expenses ratio
iv) Accounts receivable turnover in days
v) Dividend yield
vi) Price earnings ration
vii) Market value to book value ration
viii) Current ratio
b) Compare the company’s liquidity performance with that of the industry.
Date posted: May 5, 2022. Answers (1)
- Mijengo Ltd. And Vyumba ltd are medium-sized companies dealing in the sale of new residential houses. The following information was extracted from the financial records...(Solved)
Mijengo Ltd. And Vyumba ltd are medium-sized companies dealing in the sale of new residential houses. The following information was extracted from the financial records of the two companies for the year ended 31st December 2005:
Required:
i) Gearing ratio for each company
ii) Earnings per share for each company
iii) Price earnings ratio for each company
iv) Interpret your result obtained in (i) and (ii) above
Date posted: May 5, 2022. Answers (1)
- The following is an extract of the balance sheet of Shauri Moyo limited as at 31 December 2005(Solved)
The following is an extract of the balance sheet of Shauri Moyo limited as at 31 December 2005
Date posted: May 5, 2022. Answers (1)
- The earnings yields of excel Ltd. is 20% and the current market price per ordinary share is Sh100.
Each Share has a par value of Sh.50....(Solved)
The earnings yields of excel Ltd. is 20% and the current market price per ordinary share is Sh100.
Each Share has a par value of Sh.50. The dividend for the current year is expressed as 10% of the par value.
Required:
i) The earnings per share
ii) The dividend cover
iii) The price earnings ratio
Date posted: May 5, 2022. Answers (1)
- The following balance sheet was prepared by the management of Mambo Ltd. as at 31 December 2007.(Solved)
The following balance sheet was prepared by the management of Mambo Ltd. as at 31 December 2007.
The management of the company is evaluating the expected financial requirements for the year
ending 31 December 2008 and has sought your advice as a financial consultant.
The following additional information has been provided to you:
1. Sales revenue for the year ended 31 December 2007 was sh. 20 million while the projected
sales revenue for the year ending 31 December is sh. 24 million.
2. Total assets and current liabilities for year 2008 are expected to increase in the same proportion
as the increase in sales revenue.
3. The average after tax net profit margin of 8% per annum is expected to be maintained in year 2008.
4. The current dividend payout ratio of 70% is also expected to be maintained in the year 2008.
5. Any additional finance required in year 2008 would be obtained through bank loans.
Required:
i) The amount additional long term required in year 2008, if any, to finance the expected increase
in net assets.
ii) Projected balance sheet of the company as at 31 December 2008.
Date posted: May 5, 2022. Answers (1)
- The following summarized financial statements relate to Jasmine Ltd. for the year ended 31 October 2008.
The company is in the process of preparing a financial...(Solved)
The following summarized financial statements relate to Jasmine Ltd. for the year ended 31 October 2008.
The company is in the process of preparing a financial budget for the year ending 31 October 2009.
Additional information:
1. From past experience, the management of the company have determined that for each sh. 1.00
of additional sales, total investment of sh. 1.50 in fixed assets, stock and debtors would be
required.
2. The management have also determined that for each sh. 1.00 of additional sales, the company
would require trade credit amounting to sh. 0.60.
3. The company has maintained a constant dividend payout ratio.
4. Any requirements for internal funds are to be met from the retained earnings for the year
ending 31 October 2009.
Required:
i) External finance (if any ) required in year 2009 assuming that the sales for the year increase
by 20%
ii) Expected maximum growth in sales in year 2009 assuming that the company only utilizes
internal funds.
iii) Briefly explain three limitations of your estimates in (b) (i) and (ii) above.
Date posted: May 5, 2022. Answers (1)
- Sunrise Limited presented the following financial statements for the year ended 31 December 2008:(Solved)
Sunrise Limited presented the following financial statements for the year ended 31 December 2008:
Assume a 360 – day year.
Required:
i) Operating cash style
ii) Quick ratio
iii) Current ratio
iv) Debt to equity ratio
v) Operating margin ratio
vi) Debt turnover ratio
Date posted: May 5, 2022. Answers (1)
- Faidika Ltd. has an issued share capital of sh. 200 million which is made up of 8 million ordinary shares each of sh. 25 par...(Solved)
Faidika Ltd. has an issued share capital of sh. 200 million which is made up of 8 million ordinary shares each of sh. 25 par value.
The income statement of the company for the year ended 31 December 2008 was as follows.
Date posted: May 5, 2022. Answers (1)
- The following information relating to Kawaida Ltd. Was obtained from the financial statements of the company for the year ended 30 November 2009.(Solved)
The following information relating to Kawaida Ltd. Was obtained from the financial statements of the company for the year ended 30 November 2009.
Date posted: May 5, 2022. Answers (1)
- The following statement of financial position relates to Mageuzi Ltd. as a t 31 December 2009.(Solved)
The following statement of financial position relates to Mageuzi Ltd. as a t 31 December 2009.
Additional information:
1. Sales in the in the year ended 31 December 2009 amounted to sh. 20 million. The sales for the
current year ending 31 December 2010 are expected to increase by sh. 4 million.
2. The net profit margin and retention ratio for the year ended 31 December 2009 were 8 % and 30%
respectively. These ratios are expected to be maintained in the foreseeable future.
3. All assets and current liabilities are expected to change in the current year ending 31 December
2010 at the same percentage as the change in sales.
Required:
i) The amount of external financial requirements for the year ending 31 December 2010.
ii) A proforma statement of financial position as at 31 December 2010.
Date posted: May 5, 2022. Answers (1)
- Explain the purpose of financial ratio analysis and why a careful reading of the financial statements is not enough.(Solved)
Explain the purpose of financial ratio analysis and why a careful reading of the financial statements is not enough.
Date posted: May 5, 2022. Answers (1)
- Highlight three problems that could be faced by a firm with a high gearing level.(Solved)
Highlight three problems that could be faced by a firm with a high gearing level.
Date posted: May 5, 2022. Answers (1)
- The following statement of financial position was extracted from the books of XYZ Ltd. for the year ended 31 March 2011 and 31 March 2012.(Solved)
The following statement of financial position was extracted from the books of XYZ Ltd. for the year ended 31 March 2011 and 31 March 2012.
Date posted: May 5, 2022. Answers (1)
- The following data was obtained from the summarised statement of financial position of Ngamani Ltd. as at 30 November 2012:(Solved)
The following data was obtained from the summarised statement of financial position of Ngamani Ltd. as at 30 November 2012:
Date posted: May 5, 2022. Answers (1)
- The following data was obtained from the books of Chepe Ltd. for the year ended 30 November 2012:(Solved)
The following data was obtained from the books of Chepe Ltd. for the year ended 30 November 2012:
Date posted: May 5, 2022. Answers (1)