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.