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108 Question 3: Set out below are Statements of Financial Position at the end of October 2019 and 2020. and also, Statement of Income for the year ended 31 October 2019 and 2020 for Barcelona Ltd. Barcelona Ltd Statement of Financial Position 2020 2019 ASSETS .000 ,000 Non-current assets Machinery 23,337 16.092 Investments 5,580 4,860 28.917 20,952 Current assets Inventory 4,050 3,240 Trade receivables 3.870 4,680 Cash 7,920 8.028 Total assets 36,837 28,980 EQUITY AND LIABILITIES Equity Share capital 9,000 9,000 Revaluation reserve 3.780 990 Other reserves 1,620 900 Retained earnings 6.714 3,780 21,114 14,670 Non-current liabilities Long-term loan 4,860 4,680 Other loans 5.400 Current liabilities Trade payables 4.200 2.970 Bank overdraft 93 0 Tax payable 1,170 1.260 5,463 4.230 Total equity and liabilities 36,837 28,980 5.400 Barcelona Ltd Statement of Profit or Loss 2020 2019 ,000 ,000 ,000 ,000 30,780 (21,600) 9,180 Revenue 26,010 Cost of goods sold (18,225) Gross profit 7,785 Distribution costs: Depreciation 439 Irrecoverable debt 332 Advertising 189 587 637 276 (1,500) (960) (3,108) 4,572 (468) Administrative expenses: (2,010) Operating profit 4,815 Finance cost (405) Profit before tax 4,410 Income tax expenses (1,260) Profit after taxation 3,150 4,104 (1,170) 2,934 You Are Required to: a. Prepare a report to explain the company's financial performance and position with six supporting financial ratios for Board meetings. State clearly the formulae used for each ratio and show ALL workings (12 Marks) b. Barcelona Ltd is considering the possibility of expanding its operations and has identified two firms in the same industrial sector as potential takeover targets. The following information about companies has been extracted from their most recent financial statements. Prepare a performance report of ratios for the two companies indicating which of the two companies you consider to be a better acquisition. In the report, besides given ratios, briefly discuss what other information might be useful in order to assist in the financial decision making relating to the takeover of Australia and Paris Ltd. (8 Marks) CONUTINED Ratios Australia Ltd Paris Ltd Return on capital employed (5) 28 343 12 19.6 Gross profit percentage (%) Operating profit percentage (5) 16.5 P/E ratio (times) 22 182 13 1.23 8.5 12 Quick/Acid ratio (times) Inventory Tumover period (days) Gearing ratio (%) Eaming per shares (pence) Interest cover (times) 42 46 61 78 7.4 6.8 c. Some accounting scholars believe that ratio analysis can only provide the restricted view of firm's financial performance and position Discuss this statement with reference to examples. (5 Marks) TOTAL 25 Marks]