Prepare monetary statements using accounting standards, Financial Management

Assignment Help:

Entity A is significantly smaller than B in terms of revenue and would not impact LOP's revenue to the same extent. However A earns a noticeably better gross profit margin at 26% as opposite to 17% for B. A's margin is closer to LOP's and would have a less unenthusiastic impact. It maybe suggests that A has targeted a similar market to LOP, whereas B has focussed on income at the expense of margin - high volume / low margin strategy. On the other hand, it could indicate that the two entities categorize costs differently between cost of sales and other functioning costs - especially when we consider the difference in net profit margin.

Entity B earns an improved net profit at 11% and would have less impact on LOP's net margin. A's figure of 9% emerge very low with its GP at 26%. It could be that this is a minor entity and not able to take benefit of economies of scale, has high fixed costs or has poor cost control. A has high gearing and the associated finance costs are also include an impact on net profit.

The gearing of A would have a important consequence on the results of LOP as gearing is at 65% as opposed to B's gearing of 30% and LOP's 38%. However when we consider this mutually with the available lending rates, it perhaps propose that the management of A have shrewdly capitalised on low lending rates and funded the entity through exterior finance. The low gearing of B however, probably gives room to increase borrowing if necessary in the future.

The P/E ratio is a vital ratio for investors and LOP's ratio would be unfavourably affected by either acquisition. A's P/E ratio is significantly lower than B and LOP but it is difficult to make an evaluation of the applicable risk of the entities when they are judged by different markets.

The things are listed on different exchanges and so may prepare their monetary statements using different accounting standards. This will decrease the comparability of financial highlights. The ratios provided tell us nothing about the competence of the entities and the fit of management styles could be an imperative factor in a takeover situation. The entities could apply dissimilar accounting policies that could impact on the ratios, eg equity could be improve by a revaluation of non-current assets which would decrease the gearing ratio and could mask an enhance in borrowings.


Related Discussions:- Prepare monetary statements using accounting standards

Valuation models, V aluation Models A valuation model defines the e...

V aluation Models A valuation model defines the exercise of applying financial and economic principles to estimate the value of an asset. Discounted cash flow valuation mod

Account balance - inherent risk, Account balance - Inherent risk At a...

Account balance - Inherent risk At account balance / class of transaction level Balances susceptible to misstatement. History of errors. Complexity of transac

Exchange rates, Exchange Rates The prices at which one country's c...

Exchange Rates The prices at which one country's currency can be changed into that of other country. Although perceptions in the currency markets of the privacy of a count

What do you mean by pension funds, What do you mean by pension funds? ...

What do you mean by pension funds? Pension funds: Pension funds give retirement income (as the form of annuities) to workers covered through a pension plan. They get cont

Prepare a statement of financial position, Brown has been in business for s...

Brown has been in business for some years and has kept her drawings slightly below the level of profits each year. You are her accountant, and she has passed you the following list

Leverage, What is the importance of leverage in business management of a sm...

What is the importance of leverage in business management of a small scale company

Cash flow statement, Given below are the cash flows of a project. Find out ...

Given below are the cash flows of a project. Find out the net present value of the project. Cost of capital is 18% and initial investment is Rs. 2,00,000. Year Cash Flows (lakhs)

What are the limitations of trade payable day''s ratio, What are the Limita...

What are the Limitations oftrade payable day's ratio? Year-end trade payables may not be representative of the year. Credit purchases are VAT exclusive in the income sta

Explain the factors which company should apply, Explain the factors which c...

Explain the factors which company should apply Companies to be the very best must Establish what competition is doing Set the very best standards to exceed Es

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd