QUESTION ONE

Telecom Ltd is a holding company with subsidiaries that have diversified interests. Telecom Ltd Board of directors is interested in the group acquiring a subsidiary in the telecommunication industry. Two companies have been identified as potential acquisitions, Master Ltd and Servant Farms Ltd. Summaries of these companies are as follows:

Income Statements for the year ended 31st December 2014

Master Ltd Servant Ltd

GH000 GH000 GH000 GH000

Turnover 985 560

Cost of goods sold:

Opening inventory 150 145

Materials 255 136

Labor 160 125

Factory overheads 205 111

Depreciation 35 20

Closing inventory (155) (140)

(650) (397)

Gross profit 335 163

Selling & admin expenses (124) (75)

Interest (35) (10)

Profit before taxation 176 78

Taxation (65) (25)

Profit after taxation 111 53

Statements of financial position as at 31st December 2014

Master Ltd Servant Ltd

GH000 GH000 GH000 GH000

Non-current assets 765 410

Current asset:

Inventory 155 140

Receivables 170 395

Bank 50 45

375 580

Current liabilities:

Trade payables 235 300

Other 130 125

365 425

Net current assets 10 155

Debentures (220) (70)

555 495

Stated capital 450 440

Income surplus 105 55

555 495

Required:

Prepare report for the board of directors of Telecom Ltd assessing the financial performance and position of Master Farms Ltd and Servant Farms Ltd. Your report should be prepared in the context of Telecom ltd interest in these two companies and should be illustrated with financial ratios where appropriate. You should state any assumptions you make as well as any limitations of your analysis.