Clinton Products plc is a company which has had some problems with its overseas

supply chain and would like to acquire a suitable company based in the UK that

manufactures certain items from its product range. It has identified two possible

private limited companies, Bill Ltd and Ben Manufacturing Ltd$,$ and obtained the

following draft financial statements for each. The management of each company has

indicated that they would be receptive to a takeover.

Notes

$(1)$Both companies operate from similar premises. Bill Ltd$,$ owns the freehold of

its factory, and Ben Manufacturing Ltd$,$ rents its premises. Bill Ltd adopts the

revaluation method for its premises.

$(2)$ The original cost of the plant and machinery in each company was:

Bill Ltd $$5,800,000$

BenManufacturing Ltd $$18,700,000$

There were no significant disposals of non$-$current assets during the year by either

company.

$(3)$ The companies paid the following dividends during the year:

Bill Ltd $$250,000$

Ben Manufacturing Ltd $$700,000$

Required

Produce a report which compares the financial performance, financial position and

liquidity of Bill Ltd and Ben Manufacturing Ltd and contains clear recommendation

as to which company Regan Products should acquire.

Your report should include:

$($a$)$ Calculations of the following ratios for both companies using in each case the

appropriate notation:

$($i$)$ Return on capital employed

$($ii$)$ Gross profit percentage

$($iii$)$ Operating profit margin

$($iv$)$ Liquid ratio $($Quick Assets ratio$)$

$($v$)$ Inventory holding period

$($vi$)$ Trade receivables$$ collection period

$($vii$)$ Trade payables$$ payment period

$($viii$)$ Gearing

$($ix$)$ Interest cover

$($x$)$ Dividend cover

$(10$ marks$)$

$($b$)$ Prepare a report for the board of Clinton Products plc$,$comparing the

performance, financial position and liquidity of Bill Ltd$,$ and Ben Manufacturing Ltd $.$

Include your recommendations as to which company would be the more suitable to acquire.