Set out below are Statements of Financial Position at the end of October 2019 and 2020, and also, Statement of Income for the year ended 31 October 2019 and 2020 for Barcelona Ltd.

Set out below are Statements of Financial Position at the end of October 2019 and 2020, and also, Statement of Income for the year ended 31 October 2019 and 2020 for Barcelona Ltd.

 

Barcelona Ltd

Statement of Financial Position

 

                                                            2020                                               2019

ASSETS                                             £,000                                               £,000

Non-current assets

Machinery                                           23,337                                            16,092

Investments                                          5,580                                              4,860

                                                                           28,917                                                  20,952

 

Current assets

Inventory                                            4,050                                                 3,240

Trade receivables                              3,870                                                 4,680

Cash                                                        0                                                  108

                                                                          7,920                                                      8,028

Total assets                                                     36,837                                                   28,980

 

 

EQUITY AND LIABILITIES

Equity

Share capital                                   9,000                                             9,000

Revaluation reserve                        3,780                                                  990

Other reserves                                1,620                                                  900

Retained earnings                           6,714                                             3,780

                                                                         21,114                                                    14,670

Non-current liabilities

Long-term loan                                                    4,860                                                     4,680

Other loans                                                          5,400                                                     5,400

Current liabilities

Trade payables                                 4,200                                       2,970

Bank overdraft                                     93                                              0

Tax payable                                        1,170                                      1,260

                                                                              5,463                                                   4,230

Total equity and liabilities                               36,837                                                     28,980

 

 Barcelona Ltd

Statement of Profit or Loss

 

2020                            2019

                                                     £,000      £,000           £,000       £,000

 

Revenue                                                              30,780                        26,010

Cost of goods sold                                              (21,600)                      (18,225)

Gross profit                                                           9,180                          7,785

Distribution costs:

Depreciation                                            587                          439

Irrecoverable debt                                   637                          332

Advertising                                              276                          189

(1,500)                           (960)

 

Administrative expenses:                                (3,108)                        (2,010)

Operating profit                                                     4,572                          4,815

Finance cost                                                          (468)                            (405)

Profit before tax                                                   4,104                             4,410

Income tax expenses                                          (1,170)                          (1,260)

Profit after taxation                                               2,934                             3,150

 

You Are Required To:

  1. Prepare a report to explain the company’s financial performance and position with six supporting financial ratios for Board meetings.

State clearly the formulae used for each ratio and show ALL workings

(12 Marks)

 

  1. Barcelona Ltd is considering the possibility of expanding its operations and has identified two firms in the same industrial sector as potential takeover targets. The following information about companies has been extracted from their most recent financial statements. Prepare a performance report of ratios for the two companies indicating which of the two companies you consider to be a better acquisition. In the report, besides given ratios, briefly discuss what other information might be useful in order to assist in the financial decision making relating to the takeover of Australia and Paris Ltd.

(8 Marks)

 

CONUTINED

Ratios Australia Ltd Paris Ltd
Return on capital employed (%) 28 34.3
Gross profit percentage (%) 12 19.6
Operating profit percentage (%) 8.6 16.5
P/E ratio (times) 2.2 1.82
Quick/Acid ratio (times) 1.3 1.23
Inventory Turnover period (days) 8.5 12
Gearing ratio (%) 42 46
Earning per shares (pence) 61 78
Interest cover (times) 6.8 7.4

 

  1. Some accounting scholars believe that ‘ratio analysis can only provide the restricted view of firm’s financial performance and position’. Discuss this statement with reference to examples.

(5 Marks)

 

TOTAL 25 Marks]

 

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