ACCOUNTING
SUKAMUVA H
GRADE 12
ANALYSIS AND INTERPRETATION
1. Will you be willing to sell your shares at a market price?
 Compare NAV with a Market Price.
 If the Market price is above NAV, you should be willing to sell your shares as they are in
good demand. It indicates that the company is doing well.
 If the NAV is above the Market price you should not be willing to sell your shares.
2. Comment on the Dividend payout policy
Calculate percentage distributed to the shareholders (DPS/EP x 100= % distributed)
Comment by using the figures, stating % retained by business for future expansion. The increase
in the % retained by the company increase the NAV.
3. Comment on the operating efficiency of the business.
 The shareholders should be happy if:
- Operating Expenses on Sales decreased
- Gross profit on cost of sales increased/improved
- Operating profit on sales improved.
- Net profit on sales increase
This shows that the business is managing its expenses more efficiently and thereby
more profitable.

4. Comment on the liquidity:
 The shareholders should be happy/ satisfied if:
- Current Asset improved compared to the previous year.
- Acid test ratio improved
- Average debtor’s collection improved (collection days decreased)
- Average Creditors payment improved (creditors payment increased)

5. Directors feel that the shareholders should be very happy with returns, earnings and dividends.
 Return= compare the previous ROSHE with current.
 Earnings= compare EPS of the previous with the current.
 Dividends= compare DPS of the previous with the current.
6. Comment on the solvency of the business.
 Compare the current with the previous
 If the Total assets are more than Total Liabilities, the business is solvent.
7. Comment on the risk and gearing.
 Compare ROTCE of the current year with the previous
 Compare debt-equity ratio of the previous with the current
 Compare ROTCE with the interest on loans. When ROTCE is above interest on loans, the
business is positively geared. When ROTCE is less than interest on loans the company
negative geared
 Low debt equity indicate low financial risk and high debt equity indicates high financial
risk.

8. Share buyback price= Average issue price (Ordinary share capital) + Retained income
- Which price do we record in the Cash flow statement= Total price paid by the
business to buy back shares. (OSC + RI)
-
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑖𝑠𝑠𝑢𝑒𝑑
How to calculate Average issue price= 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑖𝑠𝑠𝑢𝑒𝑑
9. Why directors may decide to change dividend payout policy (increase)?
- Directors attempted to please shareholders
- No plan for growth
- To attract potential investors
10. Parties that may be interested in the audit report and why?
Potential investors
Banks
SARS
Competitors
To determine whether they can rely on the information in the financial
statements when making investments
To determine whether they can rely on the information on the statements
when making decision relating to lending the company money.
To determine whether they can rely on the information on the financial
statement when assessing the companys tax
To determine whether they can rely on the information in the financial
statements when comparing their results with those company.
11. Parties interested in the financial statements and why?
- Shareholders- to see if the company is profitable
- Banks- to check if are there enough assets to cover loans
- Creditors- is the company creditworthy?/ too see if the amount owed can be repaid.
- SARS – interested in the tax paid on the profits.
12. Why does the Companies Act make it a requirement for public companies to be audited?
- To protect shareholders
- To discourage fraud
- To ensure there is a fair reflection of financial statements
- To ensure that directors are not misrepresenting the figures
13.