HCB2200 FINANCIAL STATEMENT ANALYSIS

							                                      Wl-2-60-1-6
           JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY
           UNIVERSITY EXAMINATIONS 2011/2012
             EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
             BBC 2200: FINANCIAL STATEMENT ANALYSIS
     DATE: APRIL 2012                                      TIME: 2 HOURS
     INSTRUCTIONS: ANSWER QUESTION ONE AND ANY OTHER TWO QUESTIONS.


r:   QUESTION ONE

     a)      You have a client who has the opportunity to invest BO,OOO in one of the two companies in a
             single industry. The only information he has given you on the two companies is given below.
             According to your client the world high refered to the top third of the industry. 'Average' is the
             middle third; 'law' is the bottom third.



                                                   Company                            Company 2
             Return on total assets                1                                  average
             Profit margin                         High                               low
             Financial leverage                    High                               low
             Current                               High                               high
             Price/earnings                        Low                                average
             Debt to equity ratio                  High                               low
                                                   High


             Required
             Your client would like you to advice him on which company to invest in justify our
             recommendations.                                                                         [15 marks]


     b)       What are the limitations of using ratios as tools for analysis?                         [10 marks]


     c)      Explain the reasons of regulating financial information markets.                         [5 marks]


     QUESTION TWO


     A firm has owner's equity of sh. 100,000. The ratios for the firm are;
              Current debt to total debt                0.40
             Total debt to owner's equity                 0.60
             Total assets to owners equity                0.60
             Total asset turn over                        2 times
             Inventory asset turn over                    8 time
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               Required
               Complete the following balance sheet given the information above


                          Balance sheet
               Assets                            Sh.
               Cash
               Inventory
               Total current assets
               Fixed assets
               Total assets
               Financed by:
               Owner's equity
               Long term debt
               Current debt
               Total capital liabilities


               QUESTION THREE

               a)          Define financial statement analysis.                                                  [2 marks]

               b)          Clearly explain the purpose of carrying out financial statement analysis.             [6 marks]


               c)          Various techniques are employed you analyzing and interpreting financial statements explain
                          any four tools of financial analysis.                                                  [12 marks]


               QUESTION FOUR


               The following information relate to Kabuti Ltd for the period 2004, 2005, 2006 and 2007


                                      2004                  2005                 2006                  2007
             Net sales                200,000               190,000              249,000               260,000
        ,..-----
             Less cogs                120,000               117,800              139,200               145,600
             Gross profit             80,000                72,000               100,800               114,400
             Less expenses
             Net profit
                                  .   20,000
                                      60,000
                                                            19,400
                                                            52,800
                                                                                 22,000
                                                                                 78,800
                                                                                                       24,000
                                                                                                       90,400


                          Required
                          a)       Calculate trend percentage using 2004 as base year.                           [10 marks]
                          b)       Interprete the result for Kabuti Ltd.                                         [10 marks]