An investor is considering the purchase of shares in either Wallace or Gromit. Both companies are in the same business sector and their accounts are shown below:
Balance Sheet as at 31 March 2016
|
|
Wallace
|
|
Gromit
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Non-Current Assets
|
|
|
|
|
|
Cost
|
420
|
|
1,070
|
|
|
Accumulated depreciation
|
(113)
|
(144)
|
|
|
|
|
307
|
|
926
|
|
Current Assets
|
|
|
|
|
|
Inventory
|
|
138
|
|
167
|
|
Receivables
|
|
69
|
|
98
|
|
Bank
|
|
96
|
|
9
|
|
Total Assets
|
|
610
|
|
1,200
|
|
Current Liabilities
|
|
|
|
|
|
Payables
|
|
(60)
|
|
(120)
|
|
Interest
|
|
-
|
|
(1)
|
|
Corporation tax
|
|
(10)
|
|
(30)
|
|
Non-current Liabilities
|
|
|
|
|
10% Debentures
|
|
-
|
(80)
|
|
Total Liabilities
|
|
(70)
|
|
(231)
|
|
Total Net Assets
|
|
540
|
|
969
|
|
Share capital
|
|
370
|
|
900
|
|
Retained earnings
|
|
170
|
|
69
|
|
Total Equity
|
|
540
|
|
969
|
Income Statement for the year ending 31 March 2016
|
|
Wallace
|
|
Gromit
|
|
|
£'000
|
|
£'000
|
|
Revenue
|
596
|
|
678
|
|
Cost of sales
|
(394)
|
|
(526)
|
|
Gross Profit
|
202
|
|
152
|
|
Administration expenses
|
(36)
|
|
(45)
|
|
Selling and distribution expenses
|
(53)
|
|
(56)
|
|
Operating Profit
|
113
|
|
51
|
|
Debenture interest
|
-
|
|
(8)
|
|
Profit before tax
|
113
|
|
43
|
|
Taxation
|
(14)
|
|
(19)
|
|
Profit for the year
|
99
|
|
24
|
REQUIRED:
(a) Calculate the following six ratios for both companies, clearly showing the ratio formula and figures used: -
(i) Current ratio
(ii) Quick ratio (acid test ratio)
(iii) Receivables collection period
(iv) Return on capital employed
(v) Gross profit percentage
(vi) Net profit percentage
(15% Weighting)
(b) Using the ratios calculated in part (a) prepare a report for the investor providing comments on the performance and position of Wallace and Gromit.
(c) Suggest what further information might be useful to the potential investor before they decide in which company to invest.
(d) It has been rumoured that Gromit is planning an expansion of their production facilities which will cost £2.5million. Discuss how this might be financed and any problems associated with the methods you have chosen.
Note: Presentation and citations/referencing - see template grading sheet.
Requirements
- See attached feedback sheet for assessment criteria
- Your response can be no longer than 2000 (+/- 10%) (excluding references and appendices). Your submission should use single line spacing
- Up to a maximum of 3 appendices are permitted