BUSINESS FINANCE QUESTIONS
QUESTION ONE
An extract from the finance statements of Kenyango Fisheries Ltd is shown below:
-
Issued share capital:
150,000 ordinary shares of Sh.10 each fully paid
10% loan stock 1999
Share premium
Revenue Reserve
Capital employed
Shs.
1,500,000
2,000,000
1,500,000
7,000,000
12,000,000
The profits after 30% tax is Sh.600,000. However, interest charge has not been deducted.
-
Ordinary dividend payout ratio is 40%.
-
The current market value of ordinary shares Shs.36
Required
a) Return on capital employed
b) Earnings per share
c) Price earnings ratio
d) Book value per share
e) Gearing ratio
f) Market to book value per share
QUESTION TWO
The following financial statements relate to the ABC Company:
-
Assets
Shs.
Liabilities & Net worth
Shs.
Cash
Debtors
Stock
Total current assets
Net fixed assets
28,500
270,000
649,500
948,800
285,750
1,233,750
Trade creditors
Notes payable (9%)
Other current liabilities
Long term debt (10%)
Net worth
116,250
54,000
100,500
300,000
663,000
1,233,750
Income Statement for the year ended 31 March 1995
-
Sales
Less cost of sales
Gross profit
Selling and administration expenses
Earning before interest and tax
Interest expense
Estimated taxation (40%)
Earnings after interest and tax
Shs.
1,972,500
1,368,000
604,500
498,750
105,750
34,500
71,250
28,500
42,750
Required
a) Calculate:
i) Inventory turnover ratio; (3 marks)
ii) Times interest earned ratio; (3 marks)
iii) Total assets turnover; (3 marks)
iv) Net profit margin (3 marks)
(Note: Round your ratios to one decimal place)
b) The ABC Company operates in an industry whose norms are as follows:
Ratio Industry Norm
Inventory turnover 6.2 times
Times interest earned ratio 5.3 times
Total assets turnover 2.2 times
Net profit margin 3%
Required
Comment on the revelation made by the ratios you have computed in part (a) above when compared with the industry average.
QUESTION THREE
The following information has been extracted from the published accounts of Pesa Corporation Limited, a company quoted on the Nairobi Stock Exchange.
Shs.
Net profit after tax and interest 990,000
Less: dividends for the period 740,000
Transfer to reserves 250,000
Accumulated reserves brought forward 810,000
Reserves carried forward 1,060,000
Share capital (Sh.10 par value) Sh.8,000,000
Mar02ket price per share now 12%
Required
a) What is meant by a company quoted on the Nairobi Stock Exchange? (6 marks)
b) Calculate for Pesa Corposation Limited the following ratios and indicate the importance of each to Miss Hisa, a Shareholder:
i) Earnings per share. (4 marks)
ii) Price earnings ratio (4 marks)
iii) Dividend yield (4 marks)
iv) Dividend cover (4 marks)
(Total: 22 marks)
QUESTION FOUR
The executive director of Pesa Ltd has circulated the following information as part of board paper:
Pesa Ltd.
Financial Performance for the year ended 31 March:
-
1999
1998
i)
ii)
iii)
iv)
Return on investment
Gross profit on sales
Number of days credit given
Administrative cost of sales
12%
25%
30 days
7%
10%
20%
45 days
10%
Required
a) Brief report on each of the above 4 ratios indicating the reservation, if any, you may have or judging them as improvement in performance.
b) Tajiri Ltd has sales of Sh.20,000,000 in 1998. Beginning and closing stock was Sh.800,000 and Sh.2,200,000 respectively. G.P. margin is usually 25% of sales.
Required
i) Stock turnover ratio
ii) Number of days stock held
iii) Brief explanation on how the ratio computed in (i) above can be improved and financial
Consequences of such action.