Fastbru plc is a listed company. The principal business of the company is the manufacture and distribution of soft drinks. The company has been in operation for ten years, but the major shareholders have become particularly concerned about the performance of the company over the last two years. At a recent meeting, the board of directors of Fastbru adopted a short-term plan for recovery. The key elements of this plan were: (i) to restructure the finances of the company by issuing more shares and reducing bank borrowing (ii) to change the operating practices of the distribution network, which has relied on local depots holding inventories for distribution by local carriers to retailers. The financial statements for the three years ended 31 December 2019-2021 are given below: Statements of comprehensive income for the year ended 31 December 2019 2020 2021 $000 $000 $000 Revenue 5,210 5,295 5,380 Cost of sales 3,768 3,836 3,904 Gross profit 1,442 1,459 1,476 Distribution and administration costs 1,117 1,176 1,208 Operating profit 325 283 268 Interest paid 55 67 100 Profit before tax 270 216 168 Taxation 85 57 44 Profit for the year 185 159 124 Statements of changes in equity (retained earnings only) for the year to 31 December 2019 2020 2021 $000 $000 $000 Balance at 1 January 770 835 874 Profit for the year 185 159 124 Dividends paid (120) (120) (120) Balance at 31 December 835 874 878 2021 $000 1,013 1,420 2,433 789 231 323 17 1,129 Statements of financial position as at 31 December 2019 2020 $000 $000 Tangible non-current assets: Land and buildings 1,093 1,053 Plant, machinery, and motor vans 898 1,242 1,991 2,295 Current assets Inventories 355 525 Trade receivables 204 Cash 52 25 611 781 Current liabilities Bank overdraft 115 Trade payables 182 249 Other payables 41 48 223 412 Net current assets 369 Total assets less current liabilities 2,379 2,664 Non-current liabilities Long-term loan (secured) 544 540 1,835 2,124 Equity and reserves Issued ordinary share capital ($1 each) 1,000 1,250 Retained earnings 835 874 1,835 2,124 458 375 65 898 388 231 2,664 536 2,128 1,250 878 2,128 The following are average industry ratios for the sector in which Fastbru plc operates. These ratios have been consistent over the year period 2019-2021. Return on capital employed 13% Gross margin 25% Asset turnover 3 times Gearing (based on capital employed) 40% Inventory turnover (based on year-end figures) 12 times Interest cover 3 times Required: (a) Calculate from the financial statements of Fastbru plc, for each of the three years given, the same ratios as given for the industry sector. Please provide both the calculation formular and the results. (18 Marks) (b) Compare the ratios calculated in (a) above with the industry average, and comment on this comparison. (6 Marks) (c) Based on your answers to (a) and (b) above, discuss the merits of the key elements of the recovery plan to be adopted by the directors. (6 Marks) (d) In addition to your answers to (c) above, please provide a new short proposal about a short- term plan for recovery that helps the board of directors of Fastbru, using any ratio analysis. (10 Marks, 100 - 300 Words) Fastbru plc is a listed company. The principal business of the company is the manufacture and distribution of soft drinks. The company has been in operation for ten years, but the major shareholders have become particularly concerned about the performance of the company over the last two years. At a recent meeting, the board of directors of Fastbru adopted a short-term plan for recovery. The key elements of this plan were: (i) to restructure the finances of the company by issuing more shares and reducing bank borrowing (ii) to change the operating practices of the distribution network, which has relied on local depots holding inventories for distribution by local carriers to retailers. The financial statements for the three years ended 31 December 2019-2021 are given below: Statements of comprehensive income for the year ended 31 December 2019 2020 2021 $000 $000 $000 Revenue 5,210 5,295 5,380 Cost of sales 3,768 3,836 3,904 Gross profit 1,442 1,459 1,476 Distribution and administration costs 1,117 1,176 1,208 Operating profit 325 283 268 Interest paid 55 67 100 Profit before tax 270 216 168 Taxation 85 57 44 Profit for the year 185 159 124 Statements of changes in equity (retained earnings only) for the year to 31 December 2019 2020 2021 $000 $000 $000 Balance at 1 January 770 835 874 Profit for the year 185 159 124 Dividends paid (120) (120) (120) Balance at 31 December 835 874 878 2021 $000 1,013 1,420 2,433 789 231 323 17 1,129 Statements of financial position as at 31 December 2019 2020 $000 $000 Tangible non-current assets: Land and buildings 1,093 1,053 Plant, machinery, and motor vans 898 1,242 1,991 2,295 Current assets Inventories 355 525 Trade receivables 204 Cash 52 25 611 781 Current liabilities Bank overdraft 115 Trade payables 182 249 Other payables 41 48 223 412 Net current assets 369 Total assets less current liabilities 2,379 2,664 Non-current liabilities Long-term loan (secured) 544 540 1,835 2,124 Equity and reserves Issued ordinary share capital ($1 each) 1,000 1,250 Retained earnings 835 874 1,835 2,124 458 375 65 898 388 231 2,664 536 2,128 1,250 878 2,128 The following are average industry ratios for the sector in which Fastbru plc operates. These ratios have been consistent over the year period 2019-2021. Return on capital employed 13% Gross margin 25% Asset turnover 3 times Gearing (based on capital employed) 40% Inventory turnover (based on year-end figures) 12 times Interest cover 3 times Required: (a) Calculate from the financial statements of Fastbru plc, for each of the three years given, the same ratios as given for the industry sector. Please provide both the calculation formular and the results. (18 Marks) (b) Compare the ratios calculated in (a) above with the industry average, and comment on this comparison. (6 Marks) (c) Based on your answers to (a) and (b) above, discuss the merits of the key elements of the recovery plan to be adopted by the directors. (6 Marks) (d) In addition to your answers to (c) above, please provide a new short proposal about a short- term plan for recovery that helps the board of directors of Fastbru, using any ratio analysis. (10 Marks, 100 - 300 Words)