Nguvu Nyingi Limited and Mwenda Hadhari Limited are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years, and each has had steady growth. The management of each has a different viewpoint in many respects. Mwenda Hadhari Limited is more conservative, and as its Managing Director said, We avoid what we consider to be undue risk. Neither company is publicly held.

The 2021 financial statements for Nguvu Nyingi Limited and Mwenda Hadhari Limited are as shown below:

Statement of Financial Position as at December 31, 2021

Nguvu Nyingi Ltd Ksh. 000 Mwenda Hadhari Ltd. Ksh. 000

Assets

Non-current assets

Property, plant and equipment (net) 140,000 400,000

Intangible assets 85,000 308,000

225,000 708,000

Currents assets

Inventory 100,000 40,000

Accounts receivable 40,000 30,000

Cash and cash equivalents 35,000 22,000

175,000 92,000

Total assets 400,000 800,000

Equity and liabilities

Capital and reserves

Ordinary shares of Ksh. 10 par 150,000 500,000

Share premium 30,000 110,000

Retained earnings 60,000 70,000

240,000 680,000

Non-current liabilities

10% loan stock 60,000 70,000

Current liabilities

Accounts payable 100,000 50,000

Total equity and liabilities 400,000 800,000

Statement of Comprehensive Income for the Period Ended December 31, 2021

Nguvu Nyingi Ltd Ksh. 000 Mwenda Hadhari Ltd. Ksh. 000

Sales 450,000 810,000

Cost of sales (245,000) (405,000)

Gross profit 205,000 405,000

Operating expenses (85,715) (161,429)

Administration expenses (25,000) (50,000)

Selling and distribution expenses (24,000) (58,000)

Profit from operations 70,285 135,571

Finance cost (6,000) (7,000)

Profit before tax 64,285 128,571

Income tax expense (19,285) (38,571)

Profit for the period 45,000 90,000

Additional Information

1. Assume that 1/3 of the sales, for both Nguvu Nyingi Limited and Mwenda Hadhari Limited were on credit.

2. Selected data from the 2020 financial statements Nguvu Nyingi Mwenda Hadhari Limited Limited Ksh.000 Ksh.000 Accounts receivable (net) 20,000 38,000 Inventory 92,000 45,000 10% Loan stock 60,000 70,000 Dividends paid in 2021 36,000 15,000

3. Other data Offering price at the end of 2021 per share Ksh. 18 Ksh. 15

Required: A client of yours has the opportunity to buy 10 per cent of the shares in one or the other company at the per share prices given and has decided to invest in one of the companies. Based on the data given, prepare a comparative written evaluation of ratio analyses (and any other available information) and give your recommended choice.