Question

Greenwood Plc is an organization that manufactures machine components. You are appointed as a trainee accountant in Greenwood Plc and finance manager has asked you to prepare a report analyzing the financial statements of the organization to assess the performance for the last two years.

The summarized statements of profit or loss for the years ended 31st Dec 2019 and 2018 were:

	2019	2018
	RO ‘000’	RO ‘000’
Sales revenues	475,300	281,700
Cost of sales	332,740	176,100
Gross profit	142,560	105,600
Expenses	54,660	44,100
Profit before interest and tax	87,900	61,500
Interest expenses	8,900	6,260
Profit before tax	79,000	55,240
Tax	26,500	18,580
Profit for the year	52,500	36,660

Statement of Financial Position

	2019		2018
	RO ‘000’	RO ‘000’	RO ‘000’	RO ‘000’
Assets
Non-current assets (NBV)
Land and Building	303,072		235,004
Machinery	129,888	432,960	100,716	335,720
Current assets
Inventories	66,000		52,800
Trade receivable	61,600		46,200
Cash	8,800	136,400	6,160	105,160
Total Assets		569,360		440,880
Equity and liabilities
Ordinary shares of RO1 each	290,000		240,000
Share premium account	11,200		4,400
Retained earnings	78,400	379,600	54,000	298,400
Non- current liabilities
Loan (due for repayment 2022)		100,000		80,000
Current liabilities
Trade Accounts payable	57,360		40,880
Bank overdraft	32,400	89,760	21,600	62,480
Total equity and liabilities		569360		440880

Additional Information:

i) Assume that the current market share value per share is RO 2.500 ii) Inventory as at 31st Dec 2017 was RO 48,000
iii) Trade receivables as at 31st Dec 2017 was RO 45,000
iv) Trade payables as at 31st Dec 2017 was RO 38,000

Question 1

Assume that you are a trainee accountant in Greenwood Plc of the organization. You are required to prepare a report to be submitted to the Finance Manager of Greenwood Plc assessing the performance of the organization under the following criterions.

A. Calculate appropriate ratios under the following listed categories:

1. Profitability Ratios

2. Liquidity Ratios

3. Efficiency Ratios

4. Gearing Ratios and Investor Ratios

B. Evaluate on the performance and state the concerns of each of the stakeholder’s groups using the ratios calculated above in (A).

C. The organization is planning to invest on buying new models of Machines that will increase the production capacity of the organization. The organization is planning to invest on the new machinery by availing a Bank Loan facility.

Advice Finance Manager of Greenwood Plc whether the organization is able to receive a loan or look for other options (specify clearly the available options, if any).

Answer 1