Description
Alpha plc and Beta Ltd are competitors in the same industry, You are provided with the most recent summarised financial companies as follows: –
and sector. accounts for the two
Beta
£000’s £000’s
188,000 84,000
66,000
18,000
206,000
79,800
42,420 122,220
81,720 42,000 3,500 127,220
(5,000) 201,000
__-___ 201,000 ======
128,000 73,000 201,000
======
Balance Sheets: –
Fixed Assets
Freehold property at cost Other assets at cost Depreciation
Net book value
Current Assets Stocks Debtors
Alpha
£000’s £000’s
105,000 63,000
21,000
42,000
147,000
70,875
44,075 114,950
Current Liabilities
Creditors 32,530 Overdraft 1,420 Taxation 20,000
53,950
Net Current Assets/(Liabilities)
Non-Current Liabilities 8% Debentures 20X6
Financed by: Ordinary shares Retained profits
61,000 208,000
52,500 155,500 ======
84,000
71,500 155,500 ======
London South Bank University 2020/21
AFE Division
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%)
