Causeway Ferguson plc is a trading company specialising in the supply of tea and coffee and related products. Jason has a small shareholding in the company that 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 that never seems to vary much.

CHAPTER 12 UNDERSTANDING FINANCIAL REPORTS: ANALYSIS OF TRENDS 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 never throws anything away, and after a search, manages to dig out from a dusty pile of papers a set of unopened annual reports from Causeway Ferguson going back over four or five years. He gives the reports to his cousin, Jasper, who is a trainee accountant, and asks him to comment on the company’s trading over the last few years.

Jasper extracts the following profit and loss account information from the annual reports:

20X7 20X6 20X5 20X4 20X3

£000 £000 £000 £000 £000 Turnover P32204-S 13501215 0022 «12430 = 12003 Cost of sales (SiO Z he ZU ee ezis es AON ate 085)

Gross profit SoZ 5 344 5 389 NOV aeh shakea e Ke)

Administrative expenses (216458 (2401) (2697) (2 010), - (1,975)

Selling and distribution (2 OS6)= (20019 (1-977) (4972) (1.951)

costs Operating profit 922 1 242 1315 1 047 992 Taxation (277) (373) (395) (314) (298)

Profit on ordinary 645 869 920 733 694 activities after taxation Dividends (250) (240) (240) (230) (230)

Retained profit for the year 395 629 680 503 464 The requirement is to prepare a horizontal trend analysis statement and a common size statement and to comment on the key features that emerge from the analysis of these statements. Does the newspaper report appear credible in the light of the analysis?

Exercises: answers available to lecturers