Question

QUESTION THREE Bolstic company Ind is a medium-sized manufacturing company that plans to expand its production capacity. The following are the most recent financial statements of the company 2018 GHS'm 5.000 3.100) 1.900 (400) 1.500 GHS m 5.000 (3.000) 2.000 Sales Cost of Sales Gross Profit Administration and Distribution expenses Profit before interest and tax Interest Profit before Tax 1.750 (380) 1,370 (400) 970 (390) SSD (330) 770 (390) Profit after Tax Dividend Profit after taxation transferred to income surplus account Statement of financial Position GHS'm GHS'm GHS'm 6,500 GHS m 6,400 Non-current assets Current Assets Inventory Debtors Cash 1.170 850 1,000 900 100 2,000 L280 Current Liabilities 2.150 CL.ISO 1.000 7.500 720 7.120 3.500 10% Debentures 4.000 Financed By: Capital And Surplus 4 Times 2:1 Additional Information; Average data for the business sector in which Bolstic Lad Operates is as follows: Gcaring (book Value of Debt book value of equity Interest Cover Current Ratio Inventory Days 90 Days Return before interest and Tax Capital Employed 25% Required: Analyse and Comment on the performance of the company based on the above sector average data. (25 Marks) Examiner: Richard Doe-Dartey Page 1 QUESTION FOUR A. Define conceptual framework and state any five (5) main usefulness of a conceptual framework B. Explain the three (3) main fundamental qualitative characteristics of financial statements State Five (5) benefits Ghana has derived from the adoption of the International Financial Reporting Standards (IFRS) D. State the main components of financial statement and Explain the five (5) key Elements of a financial statement (25 Marks)

Answer 1

Answer 3:

1) wheelwork magnitude relation indicates the economic condition magnitude relation. It says whether or not the business is heavily addicted to debt or not. It depends on the business and therefore the macro economic conditions to state whether or not the corporate is very leveraged or not. High leverage as compared to its peers could be a negative signal for each debt holders and equity holders because the company would possibly neglect its interest or debt obligations. Downgrade of credit rating will increase the disbursement for the corporate if it's heavily leveraged. whereas the magnitude relation below or at par with business could be a sensible sign.

2) Interest Cover- It depicts the liquidity position of the corporate. High interest cowl is positive for the corporate because the company is generating enough profits for the disbursement to hide for the year.

3) Current ratio- It additionally denotes the liquidity position of the corporate for shorter length. Current magnitude relation is calculated by dividing current assets with current liabilities. magnitude relation higher than one is taken into account sensible that says the corporate has enough liquidity to meets its immediate or short term obligations.

4) Inventory Days- It says however long the corporate is taking to sell the inventory and turning the inventory into sales. It ought to be in line with business numbers. High variety indicates a retardant with high volme inventory or the inventory is obsolete. It depends on the business additionally. High inventory days may also indicate that the corporate is keeping inventory to satisfy the longer term demands.

5) come back before interest & tax/Capital employed- It denotes however well the corporate is utilizing its capital to come up with in operation profit. Low worth as compared to its peers indicates that the corporate isn't running its operations expeditiously.

The higher than ratios indicates the money position of the corporate. we'll calculate it.

Company	Bolstic.
Year	2018	2017	Comments
Book Value of Debt (Debentures)	3500	3500
Book Value of Equity (Shareholders equity and Capital & Surplus)	4000	3620	The profit after tax for 2018 which was 380 got added to reserves of 2017 to give us ending value of reserves
Gearing Ratio	88%	97%	Declining gearing ratio is good but it less than the industry indicating the company is more leveraged than its peers or is making less profit than the industry players. To invest in such company the equity holders will demand higher cost of equity. Also its credit rating might be lower than its peers because of high debt
Interest Cover (EBIT/Interest)	2018	2017
EBIT	1500	1750
Interest	400	380
Interest Cover (EBIT/Interest)	3.75	4.605263	The ratio has declined due to low operating profit and high interest cost on the debt. For 2018 it is low than its peers in the industry. This indicates the industry players are in better position than the company
Current ratio	2018	2017
Current Assets	2150	2000
Current Liabilities	1150	1280
Current ratio	1.869565	1.5625	High current ratio above 1 is good but lower than the industry players. The industry peers has more current assets or less current liabilities than the company
Inventory Days	2018	2017
Inventory	1170	1000
COGS	3100	3000
Inventory turnover (COGS/Average Inventory)	2.857143	3	Average Inventory= (Beginning Inventory + Ending Inventory)/2
Days on inventory (365/Inventory turnover)	127.75	121.6667	Higher inventory days than the industry data clearing suggesting that company is not able to sell its inventory as efficient as its peers. That is why its operating profit is also low than its peers.
Operating profit/Capital employed	2018	2017
Operating profit	1500	1750	Declining operating profit
Capital employed (Debentures + Capital & Surplus)	7500	7120
Operating profit/Capital employed	20%	25%	It was in line with industry data in 2017 but in 2018 the company has not performed well in its operations.
Conclusions
Company is below expectations than the industry data in every aspects

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