Chelsea plc has embarked on a programme of growth through acquisitions and has identified Kensington Ltd and Wimbledon Ltd as companies in the same industrial sector, as potential targets.

Using recent financial statements of both Kensington and Wimbledon and fur ther information obtained from a trade association, Chelsea plc has managed to build up the following comparability table:

Kensington Wimbledon Industrial average Profitability ratios ROCE before tax % 22 28 20 Return on equity % 18 22 15 Net profit margin % 11 5 7 Gross profit ratio % 25 12 20 Activity ratios Total assets turnover = times 1.5 4.0 2.5 Non-current asset turnover = times 2.3 12.0 5.1 Receivables collection period in weeks 8.0 5.1 6.5 Inventor yholding period in weeks 21.0 4.0 13.0 Liquidity ratios Current ratio 1.8 1.7 2.8 Acid test 0.5 0.9 1.3 Debt–equity ratio % 80.0 20.0 65.0 Required:

(a) Prepare a performance report for the two companies for consideration by the directors of Chelsea plc indicating which of the two companies you consider to be a better acquisition.

(b) Indicate what further information is needed before a final decision can be made.