I am providing you with one document showing financial information on a hypothetical firm and requirements. The firm operates in a country outside the US that uses a form for financial statements that differs somewhat from the US convention.
For ratios using balance sheet items, use end-of-year balances rather than average balances so you can derive ratios for two years and, thus, can compare these ratios. For instance, for ROE, use the equity balance at the end of the year for the denominator rather than the average equity balance. Thus, for each ratio, you can show two years.
Show your calculations and label them clearly similar to the example below.
Current ratio (20x1): Current assets [number here] = [result here] Current liabilities [number here]
Current ratio (20x2): Current assets [number here] = [result here] Current liabilities [number here]
Cool plc Cool ple runs a frozen foods wholesaler business. Its accounts for the past two years are set out below: Income statements for the year ended 31st December 2018 and 2017 2018 2017 $'000 $'000 $'000 $'000 1.656 1.904 1,180 724 994 662 Revenue Cost of sales Gross Profit Staff costs Distribution expenses Advertising Office expenses Depreciation BUZI 66 27 Operating profit Interest Income before taxes Taxes Net income 124 Dividends The company paid a dividend from its profit attributable to common shareholders in each year of: 2017 2018 $'000 S000 Net income Dividend Retained earnings for the year 34 Statements of financial position (balance sheets) at 31st December 2018 and 2017 2018 2017 $'000 $'000 $'000 $'000 ASSETS Cash on hand and at bank Trade receivables Inventories Current assets 449 Land and building Equipment Delivery vans 150 100 1,255 1.825 1,250 1,699 Total Assets 193 LIABILITIES AND SHAREHOLDERS' EQUITY | Liabilities Trade payables Taxation payable Current liabilities 10% corporate bonds Total Liabilities 245 150 395 303 1,200 Shareholders' Equity Capital stock Retained earnings Shareholders' Equity Total Liabilities and Shareholders' Equity 196 1,200 230 1.430 1.825 1.396 1.699 Cash Flow Statement for year to 31st December 2018 $'000 $'000 Cash flows from operating activities: Income before taxes Adjustments for: Depreciation Interest expense Increase in receivables Increase in inventories Decrease in payables (72) Interest paid Taxes paid (15) (110) Cash flows from investing activities: Purchase of non-current assets Cash used in investing activities (100) Cash flows from financing activities Proceeds of issue of debentures Dividends paid Decrease in cash over the year Cash balance at the start of the year Cash balance at the end of the year Cool has a new chief executive who joined the company just over a year ago from a large public company where she was a sales executive. She has been studying these accounts but lacks direct accounting experience and has therefore asked for your advice in explaining two things that are puzzling her: Cool made a significant investment in new equipment in January 2018 as part of a plan to increase its scale of operations by around 25%. She had hoped that this would bring about a similar improvement in profit but can see that this has not happened. She had been led to understand that an issue of corporate bonds which was made in January 2018 would improve the company's cash position. She realises that some of the proceeds went towards buying new equipment but cannot understand where the rest of the proceeds have gone, and is worried about the company's liquidity. Required: (a) Calculate a selection of ratios reflecting Cool's performance, profitability, efficiency, working capital management, liquidity, and long-term solvency in 2017 and 2018 that will help you to understand and explain how well it has done recently. (b) Calculate Cool's cash conversion cycle as at the end of each of 2017 and 2018. (c) Based on your analysis in parts (a) and (b), comment on what you can conclude about the company's recent performance and suggest any further information that would be helpful in order to evaluate the state of its business. Cool plc Cool ple runs a frozen foods wholesaler business. Its accounts for the past two years are set out below: Income statements for the year ended 31st December 2018 and 2017 2018 2017 $'000 $'000 $'000 $'000 1.656 1.904 1,180 724 994 662 Revenue Cost of sales Gross Profit Staff costs Distribution expenses Advertising Office expenses Depreciation BUZI 66 27 Operating profit Interest Income before taxes Taxes Net income 124 Dividends The company paid a dividend from its profit attributable to common shareholders in each year of: 2017 2018 $'000 S000 Net income Dividend Retained earnings for the year 34 Statements of financial position (balance sheets) at 31st December 2018 and 2017 2018 2017 $'000 $'000 $'000 $'000 ASSETS Cash on hand and at bank Trade receivables Inventories Current assets 449 Land and building Equipment Delivery vans 150 100 1,255 1.825 1,250 1,699 Total Assets 193 LIABILITIES AND SHAREHOLDERS' EQUITY | Liabilities Trade payables Taxation payable Current liabilities 10% corporate bonds Total Liabilities 245 150 395 303 1,200 Shareholders' Equity Capital stock Retained earnings Shareholders' Equity Total Liabilities and Shareholders' Equity 196 1,200 230 1.430 1.825 1.396 1.699 Cash Flow Statement for year to 31st December 2018 $'000 $'000 Cash flows from operating activities: Income before taxes Adjustments for: Depreciation Interest expense Increase in receivables Increase in inventories Decrease in payables (72) Interest paid Taxes paid (15) (110) Cash flows from investing activities: Purchase of non-current assets Cash used in investing activities (100) Cash flows from financing activities Proceeds of issue of debentures Dividends paid Decrease in cash over the year Cash balance at the start of the year Cash balance at the end of the year Cool has a new chief executive who joined the company just over a year ago from a large public company where she was a sales executive. She has been studying these accounts but lacks direct accounting experience and has therefore asked for your advice in explaining two things that are puzzling her: Cool made a significant investment in new equipment in January 2018 as part of a plan to increase its scale of operations by around 25%. She had hoped that this would bring about a similar improvement in profit but can see that this has not happened. She had been led to understand that an issue of corporate bonds which was made in January 2018 would improve the company's cash position. She realises that some of the proceeds went towards buying new equipment but cannot understand where the rest of the proceeds have gone, and is worried about the company's liquidity. Required: (a) Calculate a selection of ratios reflecting Cool's performance, profitability, efficiency, working capital management, liquidity, and long-term solvency in 2017 and 2018 that will help you to understand and explain how well it has done recently. (b) Calculate Cool's cash conversion cycle as at the end of each of 2017 and 2018. (c) Based on your analysis in parts (a) and (b), comment on what you can conclude about the company's recent performance and suggest any further information that would be helpful in order to evaluate the state of its business
