Reference no: EM131466532 , Length: word count:2000

Building High Performance Organisations Assessment

Assessment Type: Report

An investor is considering the purchase of shares in either Wallace or Gromit. Both companies are in the same business sector and their accounts are shown below:

Balance Sheet as at 31 March 2016

	Wallace		Gromit
	£'000	£'000	£'000	£'000
Non-Current Assets
Cost	420		1,070
Accumulated depreciation	(113)		(144)
		307		926
Current Assets
Inventory		138		167
Receivables		69		98
Bank		96		9
Total Assets		610		1,200
Current Liabilities
Payables		(60)		(120)
Interest		-		(1)
Corporation tax		(10)		(30)
Non-current Liabilities
10% Debentures		-		(80)
Total Liabilities		(70)		(231)
Total Net Assets		540		969
Share capital		370		900
Retained earnings		170		69
Total Equity		540		969

Income Statement for the year ending 31 March 2016

	Wallace £'000	Gromit £'000
Revenue	596	678
Cost of sales	(394)	(526)
Gross Profit	202	152
Administration expenses	(36)	(45)
Selling and distribution expenses	(53)	(56)
Operating Profit	113	51
Debenture interest	-	(8)
Profit before tax	113	43
Taxation	(14)	(19)
Profit for the year	99	24

REQUIRED:

(a) Calculate the following six ratios for both companies, clearly showing the ratio formula and figures used: -

(i) Current ratio

(ii) Quick ratio (acid test ratio)

(iii) Receivables collection period

(iv) Return on capital employed

(v) Gross profit percentage

(vi) Net profit percentage

(b) Using the ratios calculated in part (a) prepare a report for the investor providing comments on the performance and position of Wallace and Gromit.

(c) Suggest what further information might be useful to the potential investor before they decide in which company to invest.

(d) It has been rumoured that Gromit is planning an expansion of their production facilities which will cost £2.5 million. Discuss how this might be financed and any problems associated with the methods you have chosen.