Profit and loss accounts: –
£000’s £000’s Turnover 420,000 Cost of sales 336,000 Gross profit 84,000
Less expenses:
Administration 14,300 Selling and distribution 13,500 Directors’ emoluments 11,000 Depreciation 9,000 Overdraft interest 500 Debenture interest 4,200
52,500 Profit before tax 31,500 Corporation tax 20,000 Profit after tax 11,500 Retained profits 60,000 Retained profits at year end 71,500 =====
Requirement: –
£000’s 315,000 236,250
78,750
Alpha
Beta £000’s
12,950 12,800 14,000
7,500 3,000 -___
50,250 28,500 3,500 25,000 48,000 73,000 =====
Using the above information you are required to write a report to the board of directors of a company considering making a substantial investment in one of the two companies.
Your report should cover the following areas: –
(a) Calculate TEN ratios for both companies using comparable formulae;
(max 40%)
(b) Comment briefly on what the ratios assess and the differences in the outcomes for both companies; (max 40%)
(c) The suitability for potential investment in one of the companies.
(max 20%)
