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Question - Mr Morgan is the Finance Director for Ingram plc. The company is looking to take over one of its smaller rivals. Unfortunately, Mr Morgan has been taken ill, and his assistant Madeleine has been asked to step in and propose which company should be acquired at the next meeting of the Board of Directors. Madeleine finds the results of Mr Morgan's ratio calculations, reproduced below, but she does not know what they mean. She asks you for help.
Shrader Ltd
Pinkman Ltd
Goodman Ltd
ROCE
18%
24%
30%
Gross Profit %
35%
39%
42%
Operating Profit %
19%
16%
17%
Current ratio
2.1
1.7
1.2
Acid test ratio
1.6
0.9
0.7
Account Receivable days
40 days
36 days
45 days
Inventory turnover
7.2 times
9.4 times
4.6 times
Gearing ratio
14%
21%
Required -
1. An email to Madeleine to compare the three companies regarding profitability, liquidity, efficiency and gearing. Analyse which company is performing better in each of the four areas, and state which company would be the best choice for Ingram plc to buy, clearly giving reasons for your choice.
2. Explain the three ways to finance the business takeover by Ingram plc from one of the above companies.
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