(a) Calculate a selection of ratios reflecting Cool's performance, profitability, efficiency, working capital management, liquidity, and long-term solvency in 2017 and 2018 that will help you to understand and explain how well it has done recently.
Cool plc Cool plc runs a frozen foods wholesaler business. Its accounts for the past two years are set out below: Income statements for the year ended 31st December 2018 and 2017 2018 $'000 Revenue Cost of sales Gross Profit Staff costs Distribution expenses Advertising Office expenses Depreciation Operating profit Interest Income before taxes Taxes Net income 2017 $'000 $'000 1,904 1,180 724 265 70 5 26 95 $'000 1,656 994 662 239 66 25 27 85 461 263 15 248 124 124 442 220 0 220 110 110 Dividends The company paid a dividend from its profit attributable to common shareholders in each year of: Net income Dividend Retained earnings for the year 2018 $'000 2017 $'000 124 90 34 110 60 50 Statements of financial position (balance sheets) at 31st December 2018 and 2017 2018 $'000 ASSETS Cash on hand and at bank Trade receivables Inventories Current assets 31 261 278 Land and building Equipment Delivery vans 950 225 80 Shareholders' Equity Capital stock Retained earnings Shareholders' Equity Total Liabilities and Shareholders' Equity $'000 $'000 $'000 56 175 218 570 449 1,000 150 100 1,255 1,825 Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Trade payables Taxation payable Current liabilities 10% corporate bonds Total Liabilities 2017 121 124 1,250 1,699 193 110 245 150 395 303 0 303 1,200 230 1,430 1,825 1,200 196 1,396 1,699 Cash Flow Statement for year to 31st December 2018 $'000 Cash flows from operating activities: Income before taxes Adjustments for: Depreciation Interest expense Increase in receivables Increase in inventories Decrease in payables $'000 248 95 15 358 (86) (60) (72) 140 Interest paid Taxes paid (15) (110) (125) 373 Cash flows from investing activities: Purchase of non-current assets (100) Cash used in investing activities (100) Cash flows from financing activities Proceeds of issue of debentures Dividends paid Decrease in cash over the year Cash balance at the start of the year Cash balance at the end of the year 150 (90) 60 (25) 56 31 Cool has a new chief executive who joined the company just over a year ago from a large public company where she was a sales executive. She has been studying these accounts but lacks direct accounting experience and has therefore asked for your advice in explaining two things that are puzzling her: Cool made a significant investment in new equipment in January 2018 as part of a plan to increase its scale of operations by around 25%. She had hoped that this would bring about a similar improvement in profit but can see that this has not happened. She had been led to understand that an issue of corporate bonds which was made in January 2018 would improve the company's cash position. She realises that some of the proceeds went towards buying new equipment but cannot understand where the rest of the proceeds have gone, and is worried about the company's liquidity. Required: (a) Calculate a selection of ratios reflecting Cool's performance, profitability, efficiency, working capital management, liquidity, and long-term solvency in 2017 and 2018 that will help you to understand and explain how well it has done recently. (b) Calculate Cool's cash conversion cycle as at the end of each of 2017 and 2018. (c) Based on your analysis in parts (a) and (b), comment on what you can conclude about the company's recent performance and suggest any further information that would be helpful in order to evaluate the state of its business
