BAC 406: FINANCIAL STATEMENT ANALYSIS REGULAR
SECTION A (COMPULSORY)
- a) DiscussTOUR reasons why ratios are considered an essential component in financial statement analysis (4 Marks) b) Outline the limitations of ratio analysiS when relied in decision making
- c) The following information has been extracted from the accounts of Madaraka Investments Ltd.
for the year ended 3 1 December 2015. Comparable figures for the previous year are also shown.
|She “000” 5,200||She “000”|
|Cost of goods sold||7 ,soo||42,00|
|Less: Trading ex enses||19,800||16,200|
|Less: Debenture interest
Net rofit before taxation
|23,700||1 , oo|
|Less: Co oration tax||11,520||5.760|
|Net profit after taxation||12,180||7,140|
|Less: Ordinary share dividend||6,300||4,500|
|Undistributed rofit for the year||5,880||2,640|
Statement of Comprehensive Income for the year ended 31 December:
Balance sheet as at 31 December
|Assets em loyed: Fixed assets at cost||44.400||33.600|
|Pro osed dividends||6,300||4,500|
|Net assets||40 440||3 7,200|
|Ordin share ca ital|
|Authorised, issued and fully paid (Sh.25 per share)||18,000||18,000|
|Lon -term loan:||6 360||9,000|
|debentures secured)||40 440||37, 200|
i). Calculate TWO ratios under profitability, liquidity and turnover ratios for both 2014 and 2015 that would help in assessing the profitability and liquidity positions of
Madaraka Investments Ltd. (12 Marks) ii). Comment on Madaraka Investmentts liquidity position. (4 Marks) iii). Comment on Madaraka investmentts profitability position. (4 Marks)
- Bonus shares of Sh. 20, 0,000 were issued as par Kng the year by utilizing the revaluation reserve Bongo Ltd’s rdinary shares have a par ue of Sh. 20.
- Interest expense arged to the profit and los account for the year amounted to Sh. 8,000,000.
- During the y , tax amounting to Sh. was paid.
- Total diyi ends for the year (both int’Km and proposed) amounted to Sh. 5,000,000. 7) The py6fit after tax for the year am&unted to Sh. 8,000,000.
Cash flow statement (in accordance with the requirements of IAS 7) for the year ended 31 March 2015.
practical and current Kenya examples, explain the term corporate financial
(2 Marks) b) Highlight and explain FOUR indicators and symptoms that a firm is undergoing financial distress (4 Marks)
- Notable Kenyan companies are struggling to stay afloat and in business. Discuss THREE turnaround strategies for a firm threatened with bankruptcy and liquidation
- The Altman Z score model is considered a robust tool in predicting chances company failure and is summarized as follows:
Z score = 1.2X1+ 1.4X2 + 3.3X3 + 0.6M + 1.0X5
Xl = working capital/total assets
X2 = retained earnings/total assets
X3 = earnings before interest and tax/total assets X4 = market value of equity/total liabilities
|Profit statement for||ended 30
|Less: cost of goods sold||650 000||2 700 000|
|Less: tradin ex enses||675 000||825 000|
|Less: Debenture interest||37 500||37 500|
|Net rofit before taxation||637,500||1,275,000|
|Less: Cor oration tax||240.000||480 000|
|Net profit after taxation||397,500||757,500|
|Less: Ordin share dividend||187 500||262 500|
|Undistributed rofit for th.e year||210,000||495,000|
X5 = sales/total assets
|Fixed assets at cost|
|Less: Depreciation||300 000||375 000||1,725,000|
|Less: current liabilities||1 350 000|
|Bank overdraft||97 500|
|1 50 0||1 5 00|
|Ordinary share capital
(Authorised and issued)
|10% debentures||375.000||165 000|
|50 oo||1 935 oo|
- The book value of a share for Munyah Limited for both years was Sh 10 per share while the
market value was Sh 25 per share.
Compute the Z score for both years and interpret your results (8 Marks)