6 Financial Analysis. The financial statements of Ambitious Ventures for the year ended 31 December 19×9 are presented below.

AMBITIOUS VENTURES PLC Profit and Loss Account for year ended 31 December 19×9 £m Turnover 320.10 Cost of Sales 208.39 Gross Profit 111.71 Marketing and distribution costs 35.64 Administration expenses 21.12 Other operating costs 19.76 Operating Profit 35.19 Interest Payable 11.54 Profit Before Tax 23.65 Tax 7.81 Profit for the Year 15.85 Dividends 5.63 Retained Profit for Year 10.22 AMBITIOUS VENTURES PLC Balance Sheet as at 31 December 19×9 £m FIXED ASSETS Tangible Assets 168.92 168.92 CURRENT ASSETS Stocks 89.56 Debtors 55.74 Cash and bank 4.30 149.60 CURRENT LIABILITIES Creditors: Amounts falling due within one year 139.89 Net Current Assets (Liabilities) 9.71 Total Assets less Current Liabilities 178.63 NON-CURRENT LIABILITIES Creditors: Amounts falling due after more than one year:
Loans 46.87 NET ASSETS 131.76 CAPITAL AND RESERVES Called up share capital (70 million ordinary shares of £1 each) 70.00 Profit and loss account 61.76 Equity Shareholders’ Funds 131.76 You have also been given the following information.
Ambitious Ventures—Financial Ratio Analysis Ratio Industry Average Actual 19×8 Return on Investment (ROI) 18.0% 18.0%
Return on Equity (ROE) 9.0% 9.5%
Gross Profit Margin 37.0% 33.0%
Net Profit Margin 10.0% 10.1%
Current Ratio 1.80 1.84 Acid Test Ratio 0.70 0.80 Stock Turnover 3.0 2.8 Debtor Collection Period 40 days 39 days Gearing Ratio 35.0% 39.0%
Interest Cover Ratio 4.0 2.6

(a) Using the above information you are required to complete the analysis of Ambitious Ventures financial performance and condition over the two-year period and to compare its status with that of the industry average. Assume that the industry averages apply to both 19×9 and 19×8.

(b) Discuss the limitations of the analysis you have just carried out.

(c) State what non-financial information might be useful to complete your analysis.