C-/ Report to the Board of Directors of Madina Ltd
Memorandum
To : The Board of Directors
From : The Finance Manager
Date : 31 December, 2022
Subject : Analysis of the performance of Madina Ltd for the year ended 31 December 2021
As requested, this report presents analysis of the performance of the company for the year ended 31
December 2021. The company's performance in the comparative year ended 31 December 2020 is
used as the benchmark. The company's performance has been assessed on the bases of profitability,
working capital management and leverage. Reference should be made to the attached appendix for
figures used in the report.
Profitability
The earnings generated for ordinary shareholders increased in the 2021 year. Whereas in 2020, the
profit earned by shareholders was GHC0.13 per a cedi of their investment, in 2021, it increased to
GHe0.25 per a cedi of their investment. The company's performance also exceeded the industry
average of 23.52%. The trading profit of the company also increased in the 2021 year as compared to
the 2020 performance. Compared to the industry, the company's performance was better than the
industry average. The increase in the gross profit margin, which measures the trading performance,
suggests that the company's control of cost of sales improved in the 2021 year and on average over
firms in the industry. The operating performance of the company also increased following the
increase in the gross profit. The increase in the operating performance emphasizes the company's
ability in controlling operating expenses over time and also better than firms in the industry, on
average, which could have eroded the gross profit.
Working capital management
There is an improvement in the liquidity of the company in the 2021 year. The current assets in the
year 2020 could cover the current liabilities 3.72 times, but increased to 5.55 times in the 2021 year,
as measured by the current ratio. The acid-test ratio also shows the strengthening in the company's
liquidity in the 2021 year. The company's liquidity is stronger also than the average industry liquidity.
The inventory turnover days of the company improved in the 2021 year. In 2020, the company used
45 days to sell its inventory but in 2021 used 36 days. However, there was a decline in the
performance of the company with regard to its trade receivables collection. In the year 2021, it took
the company 73 days to recover sales made on credit, but in 2020, the company used only 70 days.
The company's performance in the 2021 year also trailed the industry performance of 20 days for
inventory turnover and 68 days for trade receivables collection.
In terms of trade payables management, there was also a decline in the performance of the company
as the days granted by suppliers for credit purchases to be paid decreased. The credit days given by
suppliers decreased from 45 days in the year 2020 to 28 days in the year 2021. The lower trade
payables figure at the end of the 2021 year as against the 2020 year, despite the increase in
purchases (cost of sales) corroborates, the shortened creditor days of the company. The average
industry credit days given to firms for the 2021 year is 32 days. This also suggests that a declined or
poor performance of the company in management of its trade payables.
Conclusion
The company's profitability has improved in the 2021-year when compared over time and is also
better than the average industry performance. Likewise, liquidity has improved over time and the
company's liquidity position is stronger than the average firm's liquidity in the industry. Inventory
management has also experienced an improvement over time and when compared to the average
industry performance. However, there was a decline in the performance of trade receivables and
trade payables management in the 2021 year and when compared to the industry performance.
Signed
Finance Manager
