Financial Analysis Revision Question Leeroy is a public company that would like to expand its market share by acquiring a suitable competitor. The following information has been obtained about two potential companies which Leeroy could acquire, Cobb Limited (hereafter Cobb") and Ruth Limited (hereafter "Ruth'). Cobb Ruth Return on Capital Employed (ROCE) Gross profit margin Net profit margin Current ratio Inventories holding period Trade receivables collection period Trade payables payment period Gearing Interest cover 16.1% 13.0% 11.0% 1.4 65 days 65 days 105 days 37.2% 5.8 times 21.4% 11.5% 9.8% 1.6 30 days 61 days 43 days 68.4% 2.2 times The following additional information might be helpful: 1. Leeroy, Cobb and Ruth all distribute garden and outdoor furniture to major garden centres throughout the UK and Europe. 2. In addition, Leeroy and Cobb also develop and design a large proportion of the garden furniture they distribute. They both own exclusive rights to the manufacture of certain popular own brand designs. 3. Ruth owns its own premises whereas Cobb leases theirs. 4. Ruth's current owners are known to be receptive to a takeover however Cobb's owners are known to be resistant 5. It is rumored that Cobb wishes to borrow a significant amount of money during the next 12 months. Industry speculation suggests that this money will be used to invest in a new factory which it will locate in the United States. Required: (a) Assess the relative performance and financial position of Cobb and Ruth to inform the directors of Leeroy in their acquisition decision. (13 marks) (b) What further information would be useful to the directors of Leeroy when making their acquisition decision? (6 marks)