Question A
Below are extracts from the financial statements of a listed company which operates a chain of bakery and sandwich retail outlets in the United Kingdom.
Income statements
|
|
2009
£'000
|
2008
£'000
|
|
Revenue
|
658,186
|
628,198
|
|
Cost of sales
|
(252,284)
|
(241,939)
|
|
Gross profit
|
405,902
|
386,259
|
|
Distribution costs
|
(321,686)
|
(309,735)
|
|
Administrative expenses
|
(35,783)
|
(35,944)
|
|
Other income
|
-
|
8,033
|
|
Operating profit
|
48,433
|
48,613
|
|
Interest receivable and similar income
|
346
|
857
|
|
Profit before taxation
|
48,779
|
49,470
|
|
Taxation
|
(14,405)
|
(15,375)
|
|
Profit for the year
|
34,374
|
34,095
|
Balance sheets
|
|
2009
£'000
|
2008
£'000
|
|
Non-current assets
|
|
|
|
Intangible assets
|
579
|
686
|
|
Property, plant and equipment
|
211,155
|
210,455
|
|
|
|
|
|
Current assets
|
|
|
|
Inventories
|
11,886
|
12,152
|
|
Trade and other receivables
|
21,206
|
22,698
|
|
Cash and cash equivalents
|
34,619
|
4,433
|
|
|
|
|
|
Current liabilities
|
|
|
|
Trade and other payables
|
(71,738)
|
(62,761)
|
|
Current tax liabilities
|
(8,857)
|
(8,337)
|
|
Provisions for liabilities and charges
|
(857)
|
(2,843)
|
|
|
|
|
|
Net current liabilities
|
(13,741)
|
(34,658)
|
|
Non-current liabilities
|
|
|
|
Other payables
|
(30,460)
|
(26,108)
|
|
Provisions for liabilities and charges
|
(3,296)
|
(2,428)
|
|
|
|
|
|
Net assets
|
164,237
|
147,947
|
|
Capital and reserves
|
|
|
|
Share capital
|
2,080
|
2,080
|
|
Share premium account
|
13,533
|
13,533
|
|
Other reserves
|
359
|
359
|
|
Retained earnings
|
148,265
|
131,975
|
|
Total equity
|
164,237
|
147,947
|
Cash flow statements
|
|
2009
£'000
|
2008
£'000
|
|
Cash flows from operating activities
|
|
|
|
Cash generated from operations
|
87,944
|
59,163
|
|
Tax paid
|
(14,731)
|
(14,807)
|
|
Net cash generated from operating activities
|
73,213
|
44,356
|
|
Cash flows from investing activities
|
|
|
|
Purchase of property, plant and equipment
|
(30,296)
|
(40,758)
|
|
Purchase of intangible assets
|
-
|
(686)
|
|
Proceeds from sale of property, plant and equipment
|
2,368
|
2,200
|
|
Interest received
|
346
|
857
|
|
Net cash used in investing activities
|
(27,582)
|
(38,387)
|
|
Cash flows from financing activities
|
|
|
|
Sale of own shares
|
1,182
|
698
|
|
Shares purchased and cancelled
|
-
|
(9,738)
|
|
Dividends paid
|
(15,339)
|
(14,535)
|
|
Other financing cash flows
|
1,087
|
8,083
|
|
Net cash used in financing activities
|
(13,070)
|
(15,492)
|
|
Net increase/(decrease) in cash and cash equivalents
|
32,561
|
(9,523)
|
Notes:
- The market value of the company's shares at the year end was £4.37 (2008:£3.50).
- Share capital consists of 104 million shares with a nominal value of 2p per share.
Requirement:
a) Prepare a report describing how the liquidity of the company has changed between 2008 and 2009. Comment on why these changes may have occurred. What possible changes in the business's activities and /or efficiency may have had an effect on the changes in liquidity? You should use appropriate ratios in your analysis.
b) Imagine you are a prospective investor in this company's shares. Calculate 3 investor ratios for 2009 and 2008 which would help you to decide whether to invest, and briefly explain the meaning of each one.
c) Describe the limitations of ratio analysis using published financial statements.
d) Two user groups of financial statements are competitors and employees. Illustrating your answer with examples for each user group, explain what aspects of the company's position, performance and cash flows these user groups might focus on and why.
e) The accounting policies note is a useful source of information in a company's financial statements. Give examples of what information from the accounting policies note users of this company's financial statements might find useful and why.