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

Differentiate between systematic and unsystematic risk, QUESTION a) Dis...

QUESTION a) Discuss the importance of diversification in the context of stock markets using appropriate numerical illustrations. b) Mimine and Minush are two companies with

How to measure the firm risk of a capital budgeting project, Explain how to...

Explain how to measure the firm risk of a capital budgeting project. The firm risk of a capital budgeting project measures the force of adding a new project to the existing pro

Explain rate of the stock turnover, Q. Explain Rate of the stock turnover? ...

Q. Explain Rate of the stock turnover? Rate of the stock turnover: this is high degree of the inverse co relation between the quantum of the working capital requirement and the

Dividend yield method, Dividend yield method As per this method, the co...

Dividend yield method As per this method, the cost of Equity capital is the discount rate that equates the present value of expected future dividends per share with the net pro

Corporate bonds, Corporate bonds are debt securities issued by privat...

Corporate bonds are debt securities issued by private and public corporations. These bonds are issued to meet specific requirements like building a new plant, pur

Stock exchange, Working and function of stock exchange

Working and function of stock exchange

Auction technique, Auction Technique Auction is the most common method ...

Auction Technique Auction is the most common method to sell Government Securities. Other methods include tap sales, syndication and book building process. Presently many countr

Meaning of capital budgeting, Meaning of Capital Budgeting Decisions r...

Meaning of Capital Budgeting Decisions relating to irreversible commitment of funds to projects whose profits are to be reaped over a time span longer than the current account

How do flotation costs affect cost of raising that capital, When a company ...

When a company issues new securities, how do flotation costs affect the cost of raising that capital? When a company issues fresh securities flotation costs, enhance the cost o

Need for working capital, Along with the fixed capital nearly every Small-S...

Along with the fixed capital nearly every Small-Scale industries requires working capital though the extent of working capital requirement differs in different businesses. Working

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