8.5 Causeway Ferguson plc is a trading company specializing in the supply of tea and coffee and related products.

Jason has a small shareholding in the company which was left to him by a relative. He has never taken much interest in the company’s activities but has noticed that the company pays a regular twice-yearly dividend which never seems to vary much.

Jason has recently started reading the financial press on a regular basis and one day he finds a brief news item about tea and coffee suppliers. Causeway Ferguson is mentioned in passing: ‘Causeway Ferguson, a fine old name in British tea supply, is quietly withering away. Its lacklustre management team has failed to tackle new competitors in the market – at this rate, it starts to look like a modest takeover target for one of the food industry big boys.’

Jason looks up the company’s five-year trading record. He extracts the following information:

20X6 20X5 20X4 20X3 20X2

£000 £000 £000 £000 £000 Revenue 13,204 13,561 13,602 12,430 12,003 Cost of sales (8,012) (8,217) (8,213) (7,401) (7,085)

Gross profit 5,192 5,344 5,389 5,029 4,918 Administrative expenses (2,184) (2,101) (2,097) (2,010) (1,975)

Selling and distribution costs (2,086) (2,001) (1,977) (1,972) (1,951)

Profit before tax 922 1,242 1,315 1,047 992 Tax (277) (373) (395) (314) (298)

Profit after tax 645 869 920 733 694 Prepare a horizontal trend analysis statement and a common size statement of profit or loss. Comment on the key features which emerge from the analysis of these statements. Does the newspaper report appear credible in the light of the analysis?