HW is a listed entity that operates in a highly competitive market. A new entrant to this market (which entered on June 2016) has created pressure within the market by developing a marginally lower quality product and selling it at a lower price. The result has been a shift in market share to this new entrant. You have been asked to review the financial performance and position of HW for a large institutional investor who has identified HW as a potential investment. HW's share price fell significantly following poor interim results. The share price was $5.29 on 31 March 2016 and $3.94 on 31 March 2017. HW announced any final dividend was likely to be in the form of a scrip dividend. Extracts from HW's financial statements are provided below: Consolidated statement of financial position at 31 March 2016 ASSETS Non-current assets Property, plant and equipment Goodwill (Note 3) 2017 Sm Sm 270 15 285 205 25 230 81 63 103 110 Current assets Inventories Trade and other receivables Cash and cash equivalents 166 451 19 210 440 Total assets EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital (SI shares) Share premium Retained earnings 40 60 142 242 34 276 40 60 130 230 30 260 Non-controlling interest Total Equity 65 60 Non-current liabilities Long-term borrowings (Note 1) 120 84 26 Current liabilities Trade and other payables Short-term borrowings (Note 2) 110 175 451 120 180 440 Total Liabilities Total equity and liabilities Notes: 1. The long-term borrowings are repayable in 2022 2. HW has a facility in place permitting short-term borrowings up to a maximum of $50 million 3. Goodwill was impaired this year and this has been charged to operating expenses. No further investments were acquired in the year. Required: a. Calculate the P/E ratio for HW at 31 March 2017 and 31 March 2016 (6 marks) b. Explain what conclusions can be drawn from HW's PE ratios and the movement in the share price in the year. (6 marks) c. "A high earning per share may not always maximize the share price". Explain your answer. (7 marks) d. Analyse the financial performance and financial position of HW and discuss whether or not you would recommend that HW be considered further for investment. (10 marks are available for the calculation of relevant ratios). (21 marks) HW is a listed entity that operates in a highly competitive market. A new entrant to this market (which entered on June 2016) has created pressure within the market by developing a marginally lower quality product and selling it at a lower price. The result has been a shift in market share to this new entrant. You have been asked to review the financial performance and position of HW for a large institutional investor who has identified HW as a potential investment. HW's share price fell significantly following poor interim results. The share price was $5.29 on 31 March 2016 and $3.94 on 31 March 2017. HW announced any final dividend was likely to be in the form of a scrip dividend. Extracts from HW's financial statements are provided below: Consolidated statement of financial position at 31 March 2016 ASSETS Non-current assets Property, plant and equipment Goodwill (Note 3) 2017 Sm Sm 270 15 285 205 25 230 81 63 103 110 Current assets Inventories Trade and other receivables Cash and cash equivalents 166 451 19 210 440 Total assets EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital (SI shares) Share premium Retained earnings 40 60 142 242 34 276 40 60 130 230 30 260 Non-controlling interest Total Equity 65 60 Non-current liabilities Long-term borrowings (Note 1) 120 84 26 Current liabilities Trade and other payables Short-term borrowings (Note 2) 110 175 451 120 180 440 Total Liabilities Total equity and liabilities Notes: 1. The long-term borrowings are repayable in 2022 2. HW has a facility in place permitting short-term borrowings up to a maximum of $50 million 3. Goodwill was impaired this year and this has been charged to operating expenses. No further investments were acquired in the year. Required: a. Calculate the P/E ratio for HW at 31 March 2017 and 31 March 2016 (6 marks) b. Explain what conclusions can be drawn from HW's PE ratios and the movement in the share price in the year. (6 marks) c. "A high earning per share may not always maximize the share price". Explain your answer. (7 marks) d. Analyse the financial performance and financial position of HW and discuss whether or not you would recommend that HW be considered further for investment. (10 marks are available for the calculation of relevant ratios). (21 marks)