Arden Books Limited is considering the acquisition of a bookbinding company to expand the publishing interests. Its chief executive has highlighted two possible target, Cliff Binding Limited and Harry Publishing Services Limited. The following information has been obtained for their most recent financial year: Cliff Binding Profit & Sale ££ Sales 68,000 Cost of sales 30,000 Gross profit margin 38,000 Selling & distribution costs 16,000 Administrative cost 10,000 16,000 Profit before Tax 12,000 Taxation 3,000 Profit after Tax 9,000 Statement of Financial Position Non-current assets 10,600 Current assets 18,000 Payables 28,000 Cash - 46,000 Current Liabilities Creditors 26,000 Overdraft 5,000 31,000 Net current assets 15,000 25,600 Capital and reserves Ordinary share capital 10,000 Harry Publishing ££ 61,500 38,000 23,500 10,000 6,500 16,500 7,000 1,750 5,250 8,300 8,000 10,000 2,000 20,000 6,000 - 6,000 14,000 22,00 12,000 Retained profits 5,600 15,600 Long term loan 10,000 25,600 10,300 22, 300 - 22,300 The Chief Executive favours Cliff Binding ahead of Harry Publishing, since it earned higher and generated high sales in the past financial year. As the company’s financial adviser, you have been asked for your assessment of the two companies, from the viewpoint of (i). Liquidity; (ii) profitability; (iii)capital structure (iv) efficiency.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Arden Books Limited is considering the acquisition of a bookbinding company to expand the publishing interests. Its chief executive has highlighted two possible target, Cliff Binding Limited and Harry Publishing Services Limited. The following information has been obtained for their most recent financial year: Cliff Binding Profit & Sale ££ Sales 68,000 Cost of sales 30,000 Gross profit margin 38,000 Selling & distribution costs 16,000 Administrative cost 10,000 16,000 Profit before Tax 12,000 Taxation 3,000 Profit after Tax 9,000 Statement of Financial Position Non-current assets 10,600 Current assets 18,000 Payables 28,000 Cash - 46,000 Current Liabilities Creditors 26,000 Overdraft 5,000 31,000 Net current assets 15,000 25,600 Capital and reserves Ordinary share capital 10,000 Harry Publishing ££ 61,500 38,000 23,500 10,000 6,500 16,500 7,000 1,750 5,250 8,300 8,000 10,000 2,000 20,000 6,000 - 6,000 14,000 22,00 12,000 Retained profits 5,600 15,600 Long term loan 10,000 25,600 10,300 22, 300 - 22,300 The Chief Executive favours Cliff Binding ahead of Harry Publishing, since it earned higher and generated high sales in the past financial year. As the company’s financial adviser, you have been asked for your assessment of the two companies, from the viewpoint of (i). Liquidity; (ii) profitability; (iii)capital structure (iv) efficiency.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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