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Question A
Below are extracts from the financial statements of a listed company which operates a chain of bakery and sandwich retail outlets in the United Kingdom.
Income statements
2009 £'000
2008 £'000
Revenue
658,186
628,198
Cost of sales
(252,284)
(241,939)
Gross profit
405,902
386,259
Distribution costs
(321,686)
(309,735)
Administrative expenses
(35,783)
(35,944)
Other income
-
8,033
Operating profit
48,433
48,613
Interest receivable and similar income
346
857
Profit before taxation
48,779
49,470
Taxation
(14,405)
(15,375)
Profit for the year
34,374
34,095
Balance sheets
Non-current assets
Intangible assets
579
686
Property, plant and equipment
211,155
210,455
Current assets
Inventories
11,886
12,152
Trade and other receivables
21,206
22,698
Cash and cash equivalents
34,619
4,433
Current liabilities
Trade and other payables
(71,738)
(62,761)
Current tax liabilities
(8,857)
(8,337)
Provisions for liabilities and charges
(857)
(2,843)
Net current liabilities
(13,741)
(34,658)
Non-current liabilities
Other payables
(30,460)
(26,108)
(3,296)
(2,428)
Net assets
164,237
147,947
Capital and reserves
Share capital
2,080
Share premium account
13,533
Other reserves
359
Retained earnings
148,265
131,975
Total equity
Cash flow statements
Cash flows from operating activities
Cash generated from operations
87,944
59,163
Tax paid
(14,731)
(14,807)
Net cash generated from operating activities
73,213
44,356
Cash flows from investing activities
Purchase of property, plant and equipment
(30,296)
(40,758)
Purchase of intangible assets
(686)
Proceeds from sale of property, plant and equipment
2,368
2,200
Interest received
Net cash used in investing activities
(27,582)
(38,387)
Cash flows from financing activities
Sale of own shares
1,182
698
Shares purchased and cancelled
(9,738)
Dividends paid
(15,339)
(14,535)
Other financing cash flows
1,087
8,083
Net cash used in financing activities
(13,070)
(15,492)
Net increase/(decrease) in cash and cash equivalents
32,561
(9,523)
Notes:
Requirement:
a) Prepare a report describing how the liquidity of the company has changed between 2008 and 2009. Comment on why these changes may have occurred. What possible changes in the business's activities and /or efficiency may have had an effect on the changes in liquidity? You should use appropriate ratios in your analysis.
b) Imagine you are a prospective investor in this company's shares. Calculate 3 investor ratios for 2009 and 2008 which would help you to decide whether to invest, and briefly explain the meaning of each one.
c) Describe the limitations of ratio analysis using published financial statements.
d) Two user groups of financial statements are competitors and employees. Illustrating your answer with examples for each user group, explain what aspects of the company's position, performance and cash flows these user groups might focus on and why.
e) The accounting policies note is a useful source of information in a company's financial statements. Give examples of what information from the accounting policies note users of this company's financial statements might find useful and why.
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