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    Section A - Answer Question One (Compulsory Question)

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    Adeel Khalid
    PGK Plc's profitability declined from 2015 to 2018 according to its summarized annual financial statements. Return on capital employed fell from 13% in 2015 to 10% in 2018. The key drivers that caused this decline include higher selling, general and administrative expenses, higher interest expenses due to increased borrowing, and higher income tax expenses despite lower pre-tax income.

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    Section A - Answer Question One (Compulsory Question)

    Uploaded by

    Adeel Khalid
    37 views5 pages
    PGK Plc's profitability declined from 2015 to 2018 according to its summarized annual financial statements. Return on capital employed fell from 13% in 2015 to 10% in 2018. The key drivers that caused this decline include higher selling, general and administrative expenses, higher interest expenses due to increased borrowing, and higher income tax expenses despite lower pre-tax income.

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    financial analysis

    Original Title

    Exam 2018 F.A. (1)

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    PGK Plc's profitability declined from 2015 to 2018 according to its summarized annual financial statements. Return on capital employed fell from 13% in 2015 to 10% in 2018. The key drivers that caused this decline include higher selling, general and administrative expenses, higher interest expenses due to increased borrowing, and higher income tax expenses despite lower pre-tax income.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    37 views5 pages

    Section A - Answer Question One (Compulsory Question)

    Uploaded by

    Adeel Khalid
    PGK Plc's profitability declined from 2015 to 2018 according to its summarized annual financial statements. Return on capital employed fell from 13% in 2015 to 10% in 2018. The key drivers that caused this decline include higher selling, general and administrative expenses, higher interest expenses due to increased borrowing, and higher income tax expenses despite lower pre-tax income.

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    © All Rights Reserved
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    Download as pdf or txt
    of 5

    SECTION A – ANSWER QUESTION ONE (COMPULSORY QUESTION)

    Question 1

    The summarised annual financial statements for PGK Plc are given below for the
    year to 31 January 2015, and three years later for the year to 31 January 2018. The
    financial statements show that Return on Capital Employed stood at 13% in 2015
    and 10% in 2018. By analysing the drivers of earnings based on the financial
    statement data provided, you should explain why profitability has declined and the
    key drivers which have caused this. The average tax rate for both years on financing
    activities is 30%.
    PGK Plc
    (£000) (£000)
    STATEMENT OF FINANCIAL POSITION 2018 2015

    Assets
    Cash and Short Term Investments 9,457 9,818
    Receivables 37,912 24,268
    Total Inventories 19,085 17,444
    Other Current Assets 651 762
    Current Assets – Total 67,105 52,292
    Property Plant and Equipment – Gross 93,625 83,089
    Accumulated Depreciation 59,845 52,457
    Property Plant and Equipment – Net 33,780 30,632
    Intangible Assets 9,585 9,095
    Total Assets 110,470 92,019

    Liabilities & Shareholders' Equity


    Accounts Payable 19,021 14,660
    Short Term Debt and Current Portion of Long 903 998
    Term Debt
    Accrued Payroll 1,673 2,930
    Income Taxes Payable 100 528
    Other Current Liabilities 2,852 1,892
    Current Liabilities – Total 24,549 21,008
    Long Term Debt 15,935 9,460
    Provisions and Other Liabilities 21,699 19,228
    Shareholders’ Equity 48,287 42,323
    Total Liabilities & Shareholders' Equity 110,470 92.019
    (£000) (£000)
    STATEMENT OF PROFIT AND LOSS 2018 2015

    Net Sales 101,993 92,527


    Less: Cost of Goods Sold 66,284 66,793
    Less: Depreciation and Amortization 8,517 5,172
    Gross Income 27,192 20,562
    Less: Selling, General & Administrative 11,667 12,727
    Expenses
    Operating Income 15,525 7,835
    Add: Interest Income 190 159
    Earnings before Interest and Taxation (EBIT) 15,715 7,994
    Less: Interest Expense 8,752 457
    Pretax Income 6,963 7,537
    Less: Income Taxes 1,975 2,164
    Net Income 4,988 5,373

    2018 2015
    Return on Capital Employed 10% 13%

    Total for Section A: 40 marks


    SECTION B - ANSWER TWO QUESTIONS.

    Question 2: Answer all parts


    In June 2014, a UK listed company announced that it would buy back as much as
    30% of its shares, with the repurchase being financed by new borrowings.

    a. In respect of the above case discuss what is the likely effect the
    repurchase will have on earnings per share and earnings per share
    growth. (20 marks)
    b. Will the repurchase add value to shareholders, and why? (10 marks)
    (Total question 2: 30 marks)

    Question 3
    The following information has been provided in £millions for Zena Plc:

    2018 2019 2020 2021 2022 2023


    Eps 1.56 1.68 1.74 1.80 1.92
    Dps 0.61 0.64 0.78 0.94 0.97
    Bps 5.06 6.01 7.05 8.01 8.87 9.82

    ROCE
    RE

    The required rate of return is 10%.


    The Residual Earnings are expected to be constant after 2023

    Required:

    Calculate ROCE and the Value Per Share for Zena Plc.

    (Total question 3: 30 marks)


    Question 4: Answer all parts
    a) The following provides both accounting and market data for two firms
    operating in the retail sector: Cotton plc and Wool plc

    Cotton plc Wool plc


    £ £
    Current Assets 32,596,500 39,215,871
    Current Liabilities 16,169,600 34,149,755
    Total Assets 1,218,658,050 124,868,357
    Retained Earnings 20,185,701 23,606,531
    Earnings Before Interest and
    Taxes 7,010,650 13,280,757
    Market Capitalisation 9,664,250 13,271,565
    Long term debt 23,299,636 5,121,355
    Sales (Revenue) 62,598,300 106,410,647

    Calculate the Z-score for both firms using the original Altman technique; and
    based on your calculations explain whether the above firms are facing the
    likelihood of financial distress and why.

    (22 marks)

    b) Explain the possible steps taken by a firm facing financial distress.


    (8 marks)

    (Total question 4: 30 marks)

    Total for Section B: 60 marks

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