arch 20x0 Us Ltd Them Ltd kOOO K000 K000 K000 K000 K000 Non-current assets Land and buildings 381
You are financial adviser to a retailing company, Us Ltd. You obtain the accounts of its main competitor operating in the same market. Them Lbt, and extract the comparison shown below:
Balance sheets as at 31 March 20x0
Us Ltd Them Ltd
kOOO K000 K000 K000 K000 K000
Non-current assets
Land and buildings 381 286
Fixtures and fittings 342 218
Vehicles 62 59
785 563
Current assets
Inventory 96 122
Trade debtors 166 124
Cash 9 6
271 252
Current liabilities
Overdraft 20 21
Trade creditors 132 97
Accruals 48 42
200 160
71 92
856 655
Shareholders’ funds
Share capital 470 350
Capital reserves 35 65
Income statement 287 185
792 600
10% debentures 64 55
856 655
Income statement for the year ended 31 march 20x0
Us Ltd Them Ltd
K000 K000 K000 k000
Sales(on credit) 570 747
Cost of sales
Opening inventory 92 102
Purchase (on credit) 381 588
473 690
Closing inventory 96 122
377 568
Gross income 193 179
Distribution costs 60 64
Administration costs 29 31
89 95
104 84
Interest charge 8 9
Net Income 96 75
51 38
Dividend 37 24
Retained profit for the year 14 14
Upon analysis this information, you observe that it reveals significant differences between the companies.
REQUIRED.
- a) Calculate and identify the key differences in profitability and in
working capital management as between the two companies. b) based upon the analysis at(a)above, recommend actions which the management of us Ltd should consider in order to improve their financial performance. c) State any reservations you may have above drawing conclusions from the comparative analysis of the two companies.
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