A An investor is considering the purchase of shares in either AA plc or BB plc whose latest accounts are summarised below. Both companies carry on similar manufacturing activities with similar selling prices and costs of materials, labour and services.

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(a) Write a report to the investor, giving an appraisal of the results and state of each business, and

(b) advise the investor whether, in your opinion, the price earnings ratios and market price of the shares can be justified in the light of the figures in the accounts, giving your reasons.

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Balance Sheets at 30 September 19X7 (000s) Freehold property at revaluation 19X5 Plant, machinery and equipment: at cost depreciation Goodwill Stocks: finished goods work in progress Debtors Bank deposit Less Liabilities due within one year Creditors Overdraft Liabilities due after one year Ordinary 1 shares Reserves AA plc BB plc 2,400 1,800 1,800 1,200 400 600 1,400 800 400 200 300 100 800 500 400 4,500 3,400 600 900 200 800 900 1,400 1,000 2,200 1,900 2,300 1,500 1,000 500 1,300 1,000 2,300 1,500