Question
Beet Route plc is a long-established company in the fruit-packing trade. You know that the company has many valuable assets and a lot of other
Beet Route plc is a long-established company in the fruit-packing trade. You know that the company has many valuable assets and a lot of other businesses would be keen to buy it and exploit the land, buildings, and licences which it owns. You know that in 20X0, the existing board of directors was replaced and new directors were appointed. The new directors now own 40% of the shares between them.
You have also identified that no major purchases of new machinery have been made since 20X1, and several valuable non-current assets have been sold since then.
The following information is made available to you. It details the man performance ratios for this company, and the industry averages. The company draws up its accounts to 31 December each year.
Required
It is 31 March 20X5. Suggest reasons for the major changes in the performance of this company since 20X0. You may consider the payables days and receivables days ratios together.
What do you think the directors of this company are doing, and what may be the long-term impact of their actions? Do not exceed 1,000 words.
Performance ratio | 20X0 | 20X1 | 20X2 | 20X3 | 20X4 | Industry Average (20X4) |
Gross profit margin | 36% | 35% | 35% | 35% | 35% | 34% |
Return on capital employed | 13% | 13% | 14.5% | 14% | 14% | 13% |
Receivables days | 35 | 37 | 38 | 42 | 46 | 33 |
Payables days | 26 | 29 | 43 | 44 | 55 | 31 |
Dividend per share | 13.3p | 14.6p | 16.6p | 19p | 30p | Not available |
Price-earnings ratio | 7 | 6.8 | 6.6 | 5 | 3.5 | Not available |
Dividend cover | 2.2 | 2 | 1.2 | 1.0 | 0.9 | 2.5 |
Interest cover | 3 | 2.4 | 2 | 1.7 | 1.7 | 2.3 |
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