Kappu plc and Gappu plc are competing companies operating in Pakistan as cell phone network provider. There is increased regulatory pressure by PTA on the pricing of mobile phone taxes within the telecommunications industry and, with the strong competition between companies because of Chinese vendors it has led to competitive pricing structures.

Extracts from the annual reports of the two companies are as follows:

Kappu plc spent Rs 10 million in this financial year on new advertising and sports sponsorship to boost brand awareness.

Note 2 The impairment losses of Rs 1,000 million included in the operating profit of Kappu arise from a fall in the estimated fair values of the companys goodwill and other intangible assets, such as operating licenses.

The estimation of fair values is an issue involving significant management judgement.

Required: Produce a report for a potential equity investor which compares the financial performance, financial position and liquidity of companies. Your report should include: an overview of the financial information provided calculations of appropriate ratios [ All set of ratios] an evaluation of the financial performance, financial position, and liquidity of the two companies in comparison with each other conclusions and recommendations for the potential investor, which should also include details of further information that you consider should be obtained to enhance the analysis.

Revenue Cost of sales Gross profit Selling and distribution costs (see note 1) Administrative expenses 2,695 5,220 (1,595) (2,990) 1,100 2,230 (190) (430) (150) (290) Impairment losses (see note 2) (Loss)/profit from operations Finance costs (Loss)/profit before taxation Tax 1,510 (160) (1,000) (240) (75) (315) (195) (510) 1,350 (460) 890 (Loss)/profit for the year Final dividends of 6.5p per share (Pink) and 6.2p per share (Goldie) were disclosed in the financial statements. Impairment losses (see note 2) (Loss)/profit from operations Finance costs (Loss)/profit before taxation Tax (Loss)/profit for the year (1,000) (240) (75) (315) (195) (510) 1,510 (160) 1,350 (460) 890 Final dividends of 6.5p per share (Pink) and 6.2p per share (Goldie) were disclosed in the financial statements. Statements of financial position at the year ends Pink Goldie m m m m ASSETS Non-current assets Property, plant and equipment Intangibles 3,060 1,600 4,615 6,215 10,780 13,840 Current assets Inventories 15 30 460 990 Trade receivables Cash and cash equivalents 620 450 1,095 1,470 15,310 7,310 Total assets EQUITY & LIABILITIES Equity Issued capital1 equity shares Share premium Other reserves Retained earnings 1,335 2,660 2,600 5,180 470 270 115 1,580 4,320 9,890 Shareholders' equity Non-current liabilities Borrowings 2,060 4,070 Provisions 20 30 2,080 4,100 Current liabilities Trade payables Taxation and other liabilities 565 700 345 620 910 1,320 Total equity and liabilities 7,310 15,310 Revenue Cost of sales Gross profit Selling and distribution costs (see note 1) Administrative expenses 2,695 5,220 (1,595) (2,990) 1,100 2,230 (190) (430) (150) (290) Impairment losses (see note 2) (Loss)/profit from operations Finance costs (Loss)/profit before taxation Tax 1,510 (160) (1,000) (240) (75) (315) (195) (510) 1,350 (460) 890 (Loss)/profit for the year Final dividends of 6.5p per share (Pink) and 6.2p per share (Goldie) were disclosed in the financial statements. Impairment losses (see note 2) (Loss)/profit from operations Finance costs (Loss)/profit before taxation Tax (Loss)/profit for the year (1,000) (240) (75) (315) (195) (510) 1,510 (160) 1,350 (460) 890 Final dividends of 6.5p per share (Pink) and 6.2p per share (Goldie) were disclosed in the financial statements. Statements of financial position at the year ends Pink Goldie m m m m ASSETS Non-current assets Property, plant and equipment Intangibles 3,060 1,600 4,615 6,215 10,780 13,840 Current assets Inventories 15 30 460 990 Trade receivables Cash and cash equivalents 620 450 1,095 1,470 15,310 7,310 Total assets EQUITY & LIABILITIES Equity Issued capital1 equity shares Share premium Other reserves Retained earnings 1,335 2,660 2,600 5,180 470 270 115 1,580 4,320 9,890 Shareholders' equity Non-current liabilities Borrowings 2,060 4,070 Provisions 20 30 2,080 4,100 Current liabilities Trade payables Taxation and other liabilities 565 700 345 620 910 1,320 Total equity and liabilities 7,310 15,310