Hawk Limited (Hawk) manufacture and distribute washing machines. The board of directors (BoD) have been concerned for some time that their share of the market has been in decline, mainly as a result of industry-wide competition. They are also aware that to a certain extent the industry has become the victim of its own success as washing machines have become more reliable and durable and therefore do not need replacing as regularly. Therefore, the BoD are considering making an investment in Sparrow Limited (Sparrow).

Sparrow manufacture dishwashers. The BoD believe that the synergistic gains will include advantages over competitors from shared technologies, a greater distribution network, an increase in skilled employees and management, and a shared clerical and manufacturing headquarters.

Table 3.6 shows the recently issued (summarized) financial statements of Hawk and Sparrow for the year ended 31 October 2013.

Required:

(a) The BoD of Hawk Limited have asked you to analyse the position and performance of Sparrow Limited.

(b) As part of this analysis, the BoD have also asked that you use the information above to compare and contrast the position and performance of Hawk Limited with Sparrow Limited. They have asked you to conclude your analysis by stating, with reasons, whether you feel Hawk Limited should make a bid to acquire Sparrow Limited.

Transcribed Image Text:

Table 3.6 Statements of comprehensive income Hawk Sparrow 2013 2012 2013 2012 000s 000s 000s 000s Revenue 12,000 13,000 9,500 7,800 Cost of sales (8,000) Gross profit 4,000 4,800 (8,200) (4,100) (2,600) 5,400 5,200 Operating expenses (2,500) (2,550) (2,600) (2,700) Finance costs (550) (500) (900) (300) Profit before tax 950 1,750 1,900 2,200 Income tax expense (300) (600) (800) (900) Profit for the period 650 1,150 1,100 1,300 Statements of financial position Non-current assets 13,075 12,000 11,000 6,000 Current assets 2,600 2,800 1,500 1,400 Current liabilities (3,200) (3,000) (2,500) (1,500) Non-current liabilities (275) (250) (4,500) (1,500)