Clare Miller, a shareholder in Selston plc, is debating whether to keep or sell her shares in the company. Her main concern is the level of return she is receiving from Selston plc, but she also wishes to ensure that her shareholding is safe.

She has asked you to analyze the companys most recent financial statements with a view to assisting her in her decision. You have calculated the following three accounting ratios for Selston plc, for years 20X8 and 20X7, and an extract from the companys statement of cash flows is also provided below.

20X8 20X7

Return on shareholders funds 7.2% 12.8%

Asset turnover (non-current assets) 2.5 times 3.6 times

Interest cover 1.7 times 4.1 time

Selston plc:

Statement of cash flows (extract) for year 20X8 (Pula 000)

Operating activities 140

Investing activities (220)

Financing activities 200

Increase in cash and cash equivalents 120

Prepare notes for Clare that include:

(a) Comments on the relative performance of Selston plc in respect of the two years, giving possible reasons for any differences (the extract of the statement of cash flows may assist you in some aspects of this) based upon the ratios calculated

(b) Advice to Clare, with ONE principal reason only to support this, as to whether she should keep or sell her shares in the company.