NAME : TAKUDZWA TRYNOS

SURNAME : BENJAMIN

STUDENT NUMBER : N0198427P

PROGRAMME : HONOURS DEGREE IN ACCOUNTING

DEPARTMENT : ACCOUNTING

YEAR : 2022

FACULTY : COMMERCE
RATIO FORMULAE 2020 2021 Percentage
Change

Gross Profit Gross profit 15.1% 30.8% 103.1%

margin Total Income

Net Profit Profit after tax 32.2% 17.5% (45.7%)

Margin Total Income

Operating Profit before interest ∧tax 35.8% 21.6% (40%)

Profit Margin Total Income

Return On Profit before interest ∧tax 11.27% 10.4% (7.7%)

Capital Capital Employed
Employed
(ROCE)
Total assets Total Income 0.17 times 0.23times 35.3%
turnover Total Assets

Net Interest Interest Income−Interest Expense 3.48% 6.54% 87.9%

Income Ratio Total Assets

Asset Interest Interest Income 4.53% 7.82% 72.6%

Total Assets

Cash flow to (Cashflow ¿operating activities)/(Sales Revenue) 0.40% 20.3%

sales Ratio
=Overall Operating Profit 21.69% 45.7% 110.7%
Return Share Capital+ Reserves+ All Borrowings

Interest Cover (Profit before interest∧tax) /( Interest Paid ) interest and 5.3times 3.8times (28.3%)
tax )/(Interest Paid)
Return on Profit after tax∧interest 51% 24.5% (52%)
shareholders’ Equity +reserves
Equity
Proprietary (Stock holders Equity)/(Total Assets) 25.79% 35.85% 39%
Ratio
Current Ratio Current Assets 1.1 : 1 1 :1
Current Liabilities

Quick Ratio Currents−inventories 1.12 : 1 1:1

Current Assets

Net working Net working capital

capital to total Total Income
Income
Cash flow Cashflow ¿ operations+ Interest + Taxes ¿ 5times 5times _
Interest Interest
coverage ratio
Debt to debt 1:3 1:5
Equity equity

Workings
Ratio 2020 2021

Gross profit margin

845458915 3612308358
×100 % ×100 %
5287792530 11735836580

Net profit margin 1703411004 2057521422

×100 % ×100 %
5287792530 11735836580

Operating profit margin 1893825249 2539968179

×100 % ×100 %
5287792530 11735836580

Return On Capital Employed 1893825249 2539968179

×100 % x 100 %
16801225857 2454488697

Total Assets Turnover 5287792530 11735836580

30503749427 50492795488

Net income ratio 1060335735 3304410547

×100 % ×100 %
30503749427 50492795488

Asset Interest ratio 1381252568 3948861847

×100 % ×100 %
30503749427 50492795488

Cash flow to sales ratio 4352341727 2381319994

× 100 % ×100 %
5287792530 11735836580

Overall Return 1703411004 2057521422

×100 % ×100 %
3727396795 9487866802

Interest Cover 1893825249 2539968179

358212510 676554450

Return on shareholders’ equity 1703411004 2057521422

×100 % ×100 %
3310529291 8409676381

Proprietary Ratio 10916764837 17594426753

×100 % ×100 %
30503749427 50492795488

Quick ratio 15396840165 24300457600

13702523570 24141257190
Current ratio 15417722350
13702523570
24360380623
24141257190

Net working capital to total

Income
Cash flow Interest coverage ratio 320916833+ 190414245 482446757+644451300+2381319994
×10
320916833 644451300

Analysis of financial position and performance ZB Financial Holdings

Gross profit margin

Observation
The gross profit margin ratio increased from 15.1% to 30.8%.This represents a magnificent
increment of more than 100%.Moreso this ratio also indicates that in 2021 for each and every
sale / for each dollar of revenue generated by the entity 69.2% represents expense as
compared to 2020 on which almost 85% represents expenses associated with generating
income.

Reasons
There are many reasons which led to such a lucrative increment of 103.1% .The reasons are
discussed in following paragraphs.
In this case the increase it might be as a result of the cost controlling methods which had been
designed and implement by management, for example the management was able to control
expenses which arises from components such as retail deposits and fixed deposits by both
individuals and entities /businesses.
In addition to that, the increment was triggered by management’s ability to maneuvering
around vital interest income components such as Treasury bills, Mortgages and Loans .For
example the bank can increase the expected rate of its products such as loans and treasury
bills.
Apart from that the increment it might be as a result of the portifolio of products which was
held by the bank or offered by the bank .Like in this case the entity was holding a portfolio
which consist of high risk products or components such as mortgages and advances, on which
the entity can charge high interest charges inorder to recoup the cost of borrowing.

Operating profit margin

Observation
Operating profit margin ratio decreased from 35.8% to 21.6%.
The ratio shrinks by 40%.
Reasons
The decrease of operating profit margin ratio which had been observed over the years under
review can be supported by the reasons in the subsequent paragraphs.
First and foremost the decrease was triggered by negative effects of inflation, which is
evidenced by a material amount which was adjusted in 2021(in the statement of profit or
loss and other comprehensive income) as compared to the one which was adjusted in
2019.
Apart from that ,the entity(bank )received share of profit from an associate company which
was lesser than that of the prevoius year.Futhermore the operating profit margin decreased as
a result of an increase in operating costs such as staff expenses ,auditors
remuneration(because of the scope of work ) and Transport expenses (unfavourable prices of
fuel ,which were prevailing in the country between the period under review).
Moreso the operating profit margin ratio shrinks as result of ineffective measures which had
been implemented by management to control costs within the organization, for example
management can design and implememt internal control which can not be able to detect
activities such as missappriation of company assets such as vehicles cash and which result in
increase of operational costs such repairs and maintance expenses.

Net Profit margin

Observation
-The net profit margin ratio decreased from 32.2% to 17.5%.
-The ratio shrinks by 45 %
-This ratio represent the net income generated from each dollar of income of the bank.For
example in this scenario for every dollar of total income, ZB Financial Holdings generates
0.175 cents in net profits.
Reasons
First and foremost some of the reasons which had a negative impact on net profit margin ratio
had been already discussed above.However reasons behind any movements or changes of this
ratio can be concisely explained by incorporating tax expense and finance costs .For example
in this scenario the current tax expense incurred by the entity as a results of the profits which
had been made by the entity contributed negatively to a larger extent to the decrease of the
ratio.However the entity can avoid circumstances or scenarios like this by claiming for capital
allowances such as SIA(Special Initial Allowances ) and Wear tear ,inorder to minimise
taxable income.
Return on capital employed
Observation
The return on capital employed decreased from 11.27% to 10.4%.
The Ratun on capital employed decreased by 8%
Reasons
The return on each dollar invested by shareholders decreased as a result of many factors
which are fully described in the subsequent paragraphs.
-Increase in operating costs as a result of the inflationary enviroment.In this scenario
operating costs rose by 83% from ZW$4.442bn in 2020 to ZW$8.124 bn in 2021.
- Apart from that the decrease was triggered by revaluation of non-current asset which had
been performed by the entity during the year.

Interest Cover
Observation
-The number of times decreased from 5.3 times in 2019 to 3.8 times in 2021.
-This ratio decreased by 28%
-The greater the interest coverage ratio, the better the company is able to pay its interest
expense.
Reasons
First and foremost the results which had been observed over the years under review (2020
and 2022) had been catalysed by the following factors or reasons
.increase in cost of debt rates as a result of unfavourable econonomic conditions such as
inflation.
-Fixed lease payments incurred by the entity in financing its operations
-Increase in operational costs which erode operating profit which is suppose to cover interest
payments associated with debt.
- Conclusively the number of times that ZB Financial Holdings can cover or meet the interest
payments associated with debt drasticallly decrease by 28% as result of offshore borrowimgs
in which the entity is obliged to make interest payments.

Current Ratio
-It acts as an indicator of many times the company cover its current obligation/liabilities
using its current assets.
Observation
In 2020 the current ratio was 1.1:1 ,which is unfavourable because it falls outside the required
range ,moreso in 2021 the current assets and current were equal which is evidenced or
supported by the ratio calculated above,Even though there was a slight change of 0.1.
Conclusively the current ratio of ZB Financial Holdings is not satisfactory because the ratio
1:1 is below the generally accepted standard of 2:1.
Reasons
-ZB Financial Holding invested more capital in non-current assets than current assets ,this
can be evidenced by or supported by the value of non-current assets that are
disclosed /presented in its statement of financial position.
-Regulations which relate to holding of minimum cash requirements.
-The results might be caused by the unfavorable statutory instrument which had been
introduced by the government but negatively affects the working structure of the entity.
-Instead of keeping large amounts of cash in its bank account, the Bank invest surplus funds
in order to earn more income.

Quick Ratio
Quick Ratio is used to test the ability of a business to pay its short-term debts.It measures the
relationship between the liquid assets and current liabilities.Liquid assets are those assets
which can be converted into cash quickly.
Observation
ZB Financial Holdings has quick ratio of 1.12: 1(2020) and 1:1 (2021).There was a slight
decrease of 0.12.
-Also the quick ratio of ZB Financial Holdings is not favourable ,because it falls outside the
acceptable /required range.For instance in this scenario ,the current assets are exactly equal
to current liabilities,which is dangerous in case of a downturn.

Reasons
ZB Financial Holdings invest surplus cash in other banks inorder to earn interest instead of
keeping large amounts of cash in their bank account.
-The Entity seeks to comply with rules and regulations, such as holding minimum cash
requirements.
-However the business is also taking advantage low interest loans and offshore borrowings
and reinvest them inorder to earn interest income.

Total Assets Turnover

Observation
The total assets turnover ratio increased by 35% that is from 0.17 times in 2020 to 0.23times
in 2021.
Therefore the Assets were utilised more efficiently inorder to generate Income for the bank.
Reasons
The effiecient utilisation of total assets to generate Income for the bank can be attributed to
the following reasons.
Design and implementation of strong internal controls with to safeguard to assets such as
cash and non current assets.
Investment of surplus cash in other banks inorder to earn interest income.
Investment Income from associates or subsidiaries.

Gearing Ratio
Gearing is the extent at which an entity is financed by external creditors.
Observation
ZB Financial Holdings debt to equity ratio is 1 : 3 in 2020 and 1: 5 in 2021.
Reasons
This might be major causes or drivers of a great improvement of the entity’s debt to
equity ratio
-appreciation in the value of the company’s shares ,even though the company do not
issue new during the period under review.
-The company managed to repay some of the loans or advances which had been made
to them by external creditors.
-The company set aside more reserves, such as the share premium and asset replacement
and this evidenced by the notes under the financial statement.

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