Question 10

Ebony Ltd is a listed company that assembles domestic electrical goods which it then sells to both wholesale and retail customers. Ebony Ltds management was disappointed in the companys results for the year ended 31 March 2014. In an attempt to improve performance the following measures were taken early in the year ended 31 March 2015:

A national advertising campaign was undertaken,

Rebates to all wholesale customers purchasing goods above set quantity levels were introduced,

The assembly of certain lines ceased and was replaced by bought in completed products. This allowed Ebony Ltd to dispose of surplus plant.

Ebony Ltds summarised financial statements for the year ended 31 March 2015 are set out below:

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2015

	GHSm
Revenue (25% cash sales)	4,000
Cost of sales	(3,450)
Gross profit	550
Operating expenses	(370)
Operating profit	180
Profit on disposal of plant (note (i))	40
Financial charges	(20)
Profit before tax	200
Income tax expense	(50)
Profit for the year	150

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015

GHSm GHSm

Non-current Assets

Property, Plant and equipment (note (ii)) 550

Current Assets

Inventory 250

Trade receivables 360

Bank nil 610

Total Assets Equity and Liabilities Stated capital (400m shares)		1,160 100
Income Surplus		380
Non-current liabilities		480
8% loan notes Current liabilities		200
Bank overdraft	10
Trade payables	430
Current tax payables	40	480
Total equity and liabilities		1,160

Below are ratios calculated for the year ended 31 March 2014:

Return on year end capital employed (profit before interest and tax over total assets less current liabilities) 28.1%

Net assets (equal to capital employed) turnover 4 times

Gross profit margin 17%

Net profit (before tax) margin 6.3%

Current ratio 1.6:1

Closing inventory holding period 46 days

Trade receivables collection period 45 days

Trade payables payment period 55 days

Dividend yield 3.75%

Dividend cover 2 times

Notes

Ebony Ltd received GHS 120m from the sale of plant that had a carrying amount of GHS 80m at the date of its sale.

The market price of Ebony Ltds share throughout the year averaged GHS3.75 each. There were no issues or redemption of shares or loans during the year.

Dividends paid during the year ended 31 March 2016 amounted to GHS 90m, maintaining the same dividend paid in the year ended 31 March 2015.

Required:

a) Calculate ratios for the year ended 31 March, 2015 (showing your workings) for Ebony Ltd, equivalent to those provided above.

b) Analyse the financial performance and position of Ebony Ltd for the year ended 31 March 2015 compared to the previous year.