Amekom Plc is a public company that would like to acquire (100% of) a suitable private company. It has obtained the following draft financial statements for two companies, Bordiem Plc and Apim Plc. They operate in the same industry and their managements have indicated that they would be receptive to a takeover. Statements of Profit or Loss for the year ended 31st December, 2020 Bordiem Plc Apim Plc GH¢’000 GH¢’000 Revenue 12,000 20,500 Cost of sales (10,500) (18,000) –––––––– –––––––– Gross profit 1,500 2,500 Operating expenses (240) (500) Finance costs – loan (210) (300) – overdraft nil (10) – lease nil (290) –––––––– –––––––– Profit before tax 1,050 1,400 Income tax expense (150) (400) –––––––– –––––––– Profit for the year 900 1,000 –––––––– –––––––– Note: dividends paid during the year 250 700 –––––––– ––––––– Statements of financial position as at 31st December, 2020 Assets Non-current assets Freehold factory (note(i)) 4,400 nil Owned plant (note (ii)) 5,000 2,200 Leased plant (note (ii)) nil 5,300 –––––––– –––––––– 9,400 7,500 Current assets Inventory 2,000 3,600 Trade receivables 2,400 3,700 Bank 600 nil ---------- ---------- 5,000 7,300 –––––––– –––––––– Total assets 14,400 14,800 –––––––– –––––––– Equity and liabilities Equity shares of GH¢1 each 2,000 2,000 Property revaluation reserve 900 nil Retained earnings 2,600 800 –––––––– –––––––– 5,500 2,800 Non-current liabilities Finance lease obligations (note (iii)) nil 3,200 7% loan notes 3,000 nil 10% loan notes nil 3,000 Deferred tax 600 100 Government grants 1,200 nil -------- ---------- 4,800 6,300 -------- --------- Current liabilities Bank overdraft nil 1,200 Trade payables 3,100 3,800 Government grants 400 nil Finance lease obligations (note (iii)) nil 500 Taxation 600 200 –––––––– –––––––– 4,100 5,700 ------------ --------- Total equity and liabilities 14,400 14,800 – ––––––– –––––––– Notes (i) Both companies operate from similar premises. (ii) Additional details of the two companies’ plant are: Bordiem Plc Apim Plc GH¢’000 GH¢’000 Owned plant – cost 8,000 10,000 Leased plant – original fair value nil 7,500 There were no disposals of plant during the year by either company. (iii) The interest rate implicit within ABC Plc’s finance leases is 7·5% per annum. For the purpose of calculating ROCE and gearing, all finance lease obligations are treated as long-term interest-bearing borrowings: (iv) The following ratios have been calculated for Bordiem Plc and can be taken to be correct: Return on year end capital employed (ROCE) 14·8% (capital employed taken as shareholders’ funds plus long-term interest bearing borrowings – see note (iii) above) Pre-tax return on equity (ROE) 19·1% Net asset (total assets less current liabilities) turnover 1·2 times Gross profit margin 12·5% Operating profit margin 10·5% Current ratio 1·2:1 Closing inventory holding period 70 days Trade receivables’ collection period 73 days Trade payables’ payment period (using cost of sales) 108 days Gearing (see note (iii) above) 35·3% Interest cover 6 times Dividend cover 3·6 times You are required to: (a) Calculate for Apim Plc the ratios equivalent to all those given for Bordiem Plc above. (b) Assess the relative performance and financial position of Bordiem Plc and Apim Plc for the year ended 30 September 2020 to inform the directors of Amekom Plc in their acquisition decision.
Amekom Plc is a public company that would like to acquire (100% of) a suitable private company.
It has obtained the following draft financial statements for two companies, Bordiem Plc and Apim
Plc. They operate in the same industry and their managements have indicated that they would be
receptive to a takeover.
Statements of Profit or Loss for the year ended 31st December, 2020
Bordiem Plc Apim Plc
GH¢’000 GH¢’000
Revenue 12,000 20,500
Cost of sales (10,500) (18,000)
–––––––– ––––––––
Gross profit 1,500 2,500
Operating expenses (240) (500)
Finance costs – loan (210) (300)
– overdraft nil (10)
– lease nil (290)
–––––––– ––––––––
Profit before tax 1,050 1,400
Income tax expense (150) (400)
–––––––– ––––––––
Profit for the year 900 1,000
–––––––– ––––––––
Note: dividends paid during the year 250 700
–––––––– –––––––
Assets
Non-current assets
Freehold factory (note(i)) 4,400 nil
Owned plant (note (ii)) 5,000 2,200
Leased plant (note (ii)) nil 5,300
–––––––– ––––––––
9,400 7,500
Current assets
Inventory 2,000 3,600
Trade receivables 2,400 3,700
Bank 600 nil
---------- ----------
5,000 7,300
–––––––– ––––––––
Total assets 14,400 14,800
–––––––– ––––––––
Equity and liabilities
Equity shares of GH¢1 each 2,000 2,000
Property revaluation reserve 900 nil
–––––––– ––––––––
5,500 2,800
Non-current liabilities
Finance lease obligations (note (iii)) nil 3,200
7% loan notes 3,000 nil
10% loan notes nil 3,000
Government grants 1,200 nil
-------- ----------
4,800 6,300
-------- ---------
Current liabilities
Bank overdraft nil 1,200
Trade payables 3,100 3,800
Government grants 400 nil
Finance lease obligations (note (iii)) nil 500
–––––––– ––––––––
4,100 5,700
------------ ---------
Total equity and liabilities 14,400 14,800
– ––––––– ––––––––
Notes
(i) Both companies operate from similar premises.
(ii) Additional details of the two companies’ plant are:
Bordiem Plc Apim Plc
GH¢’000 GH¢’000
Owned plant – cost 8,000 10,000
Leased plant – original fair value nil 7,500
There were no disposals of plant during the year by either company.
(iii) The interest rate implicit within ABC Plc’s finance leases is 7·5% per annum. For the
purpose of calculating ROCE and gearing, all finance lease obligations are treated as long-term
interest-bearing borrowings:
(iv) The following ratios have been calculated for Bordiem Plc and can be taken to be correct:
Return on year end capital employed (ROCE) 14·8%
(capital employed taken as shareholders’ funds
plus long-term interest bearing borrowings – see note (iii) above)
Pre-tax return on equity (ROE) 19·1%
Net asset (total assets less current liabilities) turnover 1·2 times
Gross profit margin 12·5%
Operating profit margin 10·5%
Closing inventory holding period 70 days
Trade receivables’ collection period 73 days
Trade payables’ payment period (using cost of sales) 108 days
Gearing (see note (iii) above) 35·3%
Interest cover 6 times
Dividend cover 3·6 times
You are required to:
(a) Calculate for Apim Plc the ratios equivalent to all those given for Bordiem Plc above.
(b) Assess the relative performance and financial position of Bordiem Plc and Apim Plc for the
year ended 30 September 2020 to inform the directors of Amekom Plc in their acquisition
decision.
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