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NATIONAL OPEN UNIVERSITY OF NIGERIA
UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JANUARY/FEBRUARY 2013 EXAMINATION
Course Code: ENT 415
Credit Unit: 2Course Title: Analysis of Financial Statements
Time Allowed: 2 1/2
Instructions: 1. Attempt question number one (1) and any other two (2).
2. Question number 1 is compulsory and carries 30 marks while the other 2 questions carry 20 marks each.
3. Present all your points in coherent and orderly manner.
1. The financial statements of KOLAJO Trading Company Limited are as follows:
KOLAJO Trading Company Limited
Trading and Profit and Loss Account for the Year Ended 31 December, 2006
2006 2005
N000 N000 N000 N000
Sales 1,840 1,444
Less: Cost of sales
Opening stock 116 90
Purchases 1,388 1,061
Warehouses expenses 64 48
1,568 1,199
Closing stock 157 116
1,411 1,083
Gross profit 429 361
Less: Expenses
Salaries and expenses on selling 78 72
Salaries and wages 56 50
Rent and rates 25 24
Bad and doubtful debts 6 8
Depreciation 44 32
Interest on Mortgage Loan 8 10
Power and lighting 17 15
General expenses 72 61
Directors’ fees 34 24
Audit fees 7 7
347 303
|
1302081022 |
Net profit 82 58
Appropriations
Provision for taxation 18 12
Transfer to general reserves 10 8
Dividend payable 30 20
58 40
Retained in the profit and loss account 24 18
Balance Sheet as at 31 December, 2006
Fixed Assets (less depreciation)
Land and buildings 83 60
Plant and machinery 240 160
Motor vehicles 40 40
Total fixed assets 363 260
|
1302081022 |
Current Assets
Work in progress 67 46
Stock (finished goods) 90 70
Debtors (less doubtful debts) 110 80
Bank cash 20 30
287 226
Less:
Current Liabilities
Creditors 45 60
Bank overdraft 52 26
Dividend payable 30 20
Taxation 18 12
145 118
Net working capital 142 108
Net assets 505 368
Financed by equity funds:
Issued / paid up capital 300 200
Capital reserves 23 -
General reserves 60 50
Profit and loss 42 18
425 268
10 percent mortgage loan 80 100
505 368
Required:
Compute the following financial ratios for 2005 and 2006, for comparative purposes:
i) Gross profit margin
ii) Net profit margin
iii) Return on Capital Employed
iv) Current ratio
v) Acid test ratio
vi) Debt to total assets
vii) Total asset turnover
viii) Stock turnover
ix) Sales to debtors
x) Average collection periodAssume that the shares have a nominal value of N1.00 each and that the shares are currently quoted in the stock market at a price of N1.50. The same share was sold at a price of N1.45 just after the accounts were published the previous year.
(30 marks)
2. (a) Define ‘financial statement’. (5 marks)
(b) Name and discuss the main components of the financial statement. (10 marks)
(c) Discuss financial statement as a tool for management decision-making. (5 marks)
3. (a) Discuss the various steps for a reliable cash management in an enterprise. (8 marks)
(b) Enumerate and discuss the motives for holding cash. (12 marks)
4. (a) Distinguish between a ‘credit sale’ and a ‘cash sale’, with examples. (5 marks)
(b) Highlight and explain the credit policy variables of a firm. (10 marks)
(c) An enterprise uses 10,000 units of an item in 60 days. The ordering costs are N200 per order and the storage cost for one unit for 60 days is N1.00. Calculate the EOQ.
(5 marks)
5. (a) What is financial analysis? (3 marks)
(b) How useful is the analysis of financial statements? (5marks)
(c) Enumerate and discuss the types of liquidity ratios. (12 marks)
