Compare the three companies regarding profitability

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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%

39%

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.

Reference no: EM133173876

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