Hassock Co is a large public company that would like to acquire (100% of) a suitable private company. It has obtained the following draft financial statements fortwo companies, Alpha Co and Beta Co. They operate in the same industry, which is clothing manufacturing within the fashion sector. Both companies compete in the younger, high turnover, discount fashion markets. Statements of Profit or Loss for the Year Ended 30 September 2020 Alpha Co Beta Co 000 000 Revenue 6,000 10,250 Cost of sales (5,250) (9,000) Gross profit 750 1,250 Operating expenses (120) (250) Finance costs: loan (105) (150) Overdraft Nil (5) lease Nil (145) Profit beforetax 525 700 Incometax expense (75) (200) Profit forthe year 450 500 Note. Dividends were paid during the year 125 350 Statements of Financial Position as at 30 September 2020 Alpha Co Beta Co 000 000 Assets Non-current assets Freeholdfactory (Note 1) 2,200 Nil Owned plant (Note 2) 2,500 1,100 Leased plant (Note 2) Nil 2,650 4,700 3,750 Current assets Inventory 1,000 1,800 Trade receivables 1,200 1,850 Bank 300 Nil 2,500 3,650 Total assets 7,200 7,400 Equity and liabilities Equity shares of 1 each 1,000 1,000 Revaluation surplus 450 Nil Retained earnings 1,300 400 1,750 400 2,750 1,400 Non-current liabilities Lease liabilities (Note 3) Nil 1,600 7% loan notes 1,500 Nil 10% loan notes Nil 1,500 Deferred tax 300 50 Government grants 600 Nil 2,400 3,150 Current liabilities Bank overdraft Nil 600 Trade payables 1,550 1,900 Government grants 200 Nil Lease liabilities (Note 3) Nil 250 Taxation 300 100 2,050 2,850 Total equity and liabilities 7,200 7,400 Notes 1. Both companies operate from similar premises. 2. Additional details of the two companies' plant are: Alpha Co Beta Co 000 000 Owned plant-cost 4,000 5,000 Right of use asset-Leased plant-originalfair value Nil 3,750 There were no disposals of plant during the year by either company, 3. The interest rate implicit within Beta Co's leases is 7.5% per annum. Forthe purpose of calculating ROCE and gearing, all lease liabilities are treated as long-term interest-bearing borrowings. 4. The following ratios have been calculated forAlpha Co and can betakento be correct: Return on year end capital employed (ROCE) 14.8% (capital employedtaken as shareholders'funds plus long-term interest-bearing borrowings, see Note 3 above) Pre-tax return on equity (ROE) 19.1% Net asset (total assets less current liabilities) turnover 1.2 times Gross profit margin 12.5% Operating profit margin 10.5% Current ratio 1.2:1 Closing inventory holding period 70 days Trade receivables' collection period 73 days Trade payables' payment period (using cost of sales) 108 days Gearing (see Note 3 above) 35.3% Interest cover 6 times Dividend cover 3.6 times Required: (a) Calculate for Beta Co the ratios equivalent to all those givenfor Alpha Co above. (6 marks) Hassock Co is a large public company that would like to acquire (100% of) a suitable private company. It has obtained the following draft financial statements fortwo companies, Alpha Co and Beta Co. They operate in the same industry, which is clothing manufacturing within the fashion sector. Both companies compete in the younger, high turnover, discount fashion markets. Statements of Profit or Loss for the Year Ended 30 September 2020 Alpha Co Beta Co 000 000 Revenue 6,000 10,250 Cost of sales (5,250) (9,000) Gross profit 750 1,250 Operating expenses (120) (250) Finance costs: loan (105) (150) Overdraft Nil (5) lease Nil (145) Profit beforetax 525 700 Incometax expense (75) (200) Profit forthe year 450 500 Note. Dividends were paid during the year 125 350 Statements of Financial Position as at 30 September 2020 Alpha Co Beta Co 000 000 Assets Non-current assets Freeholdfactory (Note 1) 2,200 Nil Owned plant (Note 2) 2,500 1,100 Leased plant (Note 2) Nil 2,650 4,700 3,750 Current assets Inventory 1,000 1,800 Trade receivables 1,200 1,850 Bank 300 Nil 2,500 3,650 Total assets 7,200 7,400 Equity and liabilities Equity shares of 1 each 1,000 1,000 Revaluation surplus 450 Nil Retained earnings 1,300 400 1,750 400 2,750 1,400 Non-current liabilities Lease liabilities (Note 3) Nil 1,600 7% loan notes 1,500 Nil 10% loan notes Nil 1,500 Deferred tax 300 50 Government grants 600 Nil 2,400 3,150 Current liabilities Bank overdraft Nil 600 Trade payables 1,550 1,900 Government grants 200 Nil Lease liabilities (Note 3) Nil 250 Taxation 300 100 2,050 2,850 Total equity and liabilities 7,200 7,400 Notes 1. Both companies operate from similar premises. 2. Additional details of the two companies' plant are: Alpha Co Beta Co 000 000 Owned plant-cost 4,000 5,000 Right of use asset-Leased plant-originalfair value Nil 3,750 There were no disposals of plant during the year by either company, 3. The interest rate implicit within Beta Co's leases is 7.5% per annum. Forthe purpose of calculating ROCE and gearing, all lease liabilities are treated as long-term interest-bearing borrowings. 4. The following ratios have been calculated forAlpha Co and can betakento be correct: Return on year end capital employed (ROCE) 14.8% (capital employedtaken as shareholders'funds plus long-term interest-bearing borrowings, see Note 3 above) Pre-tax return on equity (ROE) 19.1% Net asset (total assets less current liabilities) turnover 1.2 times Gross profit margin 12.5% Operating profit margin 10.5% Current ratio 1.2:1 Closing inventory holding period 70 days Trade receivables' collection period 73 days Trade payables' payment period (using cost of sales) 108 days Gearing (see Note 3 above) 35.3% Interest cover 6 times Dividend cover 3.6 times Required: (a) Calculate for Beta Co the ratios equivalent to all those givenfor Alpha Co above. (6 marks)