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. – Essaylink

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%)

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