QUESTION 1 (COMPULSORY) You are Tom Collins, the financial manager of Agrippa ple, an Irish food production company based on the west coast of Ireland. It is currently listed on the Dublin Stock Exchange and has achieved significant growth in market share and profitability over the last seven years. Agrippa plc's core market is in the production and supply of fish, sourced both by its own fleet of trawlers as well as independent boats along the west coast. However, a recent European Union report into the decline of fish stocks in the Atlantic Ocean is expected to result in a recommendation to reduce the amount of fish that can be caught in European Atlantic waters for the next seven years. This will have serious implications for Agrippa ple, as it will mean that the company could be unable to supply all the markets that it has built up on the European continent in recent years. Agrippa ple will now postpone indefinitely a planned investment in production capacity in its factories in Galway and Kerry. Because of competitive pressure in the European market, the company will have limited scope to increase the price of its product and as a result, the future profitability of Agrippa plc is now at risk. Agrippa plc is examining the possibility of diversifying into new areas of business and it has identified two companies in the Irish food sector that specialise in the production of vegan versions of frozen ready-made Irish traditional dinners. This market has shown significant growth internationally and with its established distribution network to food markets throughout Europe, Agrippa plc sees potential synergies that could be exploited. The two companies, Rhoda Ltd and Finch Ltd are based in Dublin and Agrippa ple has obtained the following draft financial statements for the two companies. Statements of Profit or Loss for the year ended 31" March 2020 Revenue Cost of sales Gross profit Operating expenses Finance costs Profit before tax Income tax expense Profit for the year Rhoda '000 3,600 (3.150 450 (72) (63) 315 (45) 270 Finch '000 6,150 (5.400) 750 (150) (180) 420 (120) 300 Note: dividends paid during the year 75 210 Continued on the next page Page 2 of 7 Question / continued Statements of Financial Position as at 31" March 2020 Rhoda Finch '000 '000 '000 '000 Non-current assets Property, Plant and Equipment 2,820 2,250 Current assets Inventory Trade receivables Bank 600 720 180 1,080 1,110 nil 1.500 4.320 2,190 4.440 Total assets Equity and liabilities 600 600 Equity Equity shares of 1 each Property revaluation reserve Retained earnings 270 nil 240 780 1.050 1,650 240 840 Non-current liabilities Lease obligations (note (ii)) 7% loan notes 10% loan notes Deferred tax Government grants 960 nil 900 nil 900 nil 180 360 1,440 30 nil 1,890 Current liabilities Bank overdraft Trade payables Government grants Lease obligations (note (iii)) Taxation nil 930 120 nil 180 360 850 nil 150 350 1.230 4.320 1,710 4.440 Total equity and liabilities Notes: (1) Both companies have the same financial year-end. They both operate from similar premises located in the Dublin area. Initial enquiries made by Agrippa plc suggest that both companies would be receptive to a takeover. Additional details of the two companies' property, plant and equipment are as follows: Continued on the next page Page 3 of 7 Question I continued REQUIRED: (a) (b) Calculate for Finch Ltd. the ratios equivalent to those given above for Rhoda Ltd. (20 marks) Draft a report which advises the directors of Agrippa pic on their acquisition decision, based on an assessment of the financial performance and position of both Rhoda Ltd. and Finch Ltd. for the year ended 31" March 2020. (40 Marks) c) Outline the limitations of using ratios for analysis of a company's performance and position and discuss other information that may be useful to the management of Agrippa ple when making an acquisition decision. (20 Marks) Total: 80 Marks Page 5 of 7 QUESTION 1 (COMPULSORY) You are Tom Collins, the financial manager of Agrippa ple, an Irish food production company based on the west coast of Ireland. It is currently listed on the Dublin Stock Exchange and has achieved significant growth in market share and profitability over the last seven years. Agrippa plc's core market is in the production and supply of fish, sourced both by its own fleet of trawlers as well as independent boats along the west coast. However, a recent European Union report into the decline of fish stocks in the Atlantic Ocean is expected to result in a recommendation to reduce the amount of fish that can be caught in European Atlantic waters for the next seven years. This will have serious implications for Agrippa ple, as it will mean that the company could be unable to supply all the markets that it has built up on the European continent in recent years. Agrippa ple will now postpone indefinitely a planned investment in production capacity in its factories in Galway and Kerry. Because of competitive pressure in the European market, the company will have limited scope to increase the price of its product and as a result, the future profitability of Agrippa plc is now at risk. Agrippa plc is examining the possibility of diversifying into new areas of business and it has identified two companies in the Irish food sector that specialise in the production of vegan versions of frozen ready-made Irish traditional dinners. This market has shown significant growth internationally and with its established distribution network to food markets throughout Europe, Agrippa plc sees potential synergies that could be exploited. The two companies, Rhoda Ltd and Finch Ltd are based in Dublin and Agrippa ple has obtained the following draft financial statements for the two companies. Statements of Profit or Loss for the year ended 31" March 2020 Revenue Cost of sales Gross profit Operating expenses Finance costs Profit before tax Income tax expense Profit for the year Rhoda '000 3,600 (3.150 450 (72) (63) 315 (45) 270 Finch '000 6,150 (5.400) 750 (150) (180) 420 (120) 300 Note: dividends paid during the year 75 210 Continued on the next page Page 2 of 7 Question / continued Statements of Financial Position as at 31" March 2020 Rhoda Finch '000 '000 '000 '000 Non-current assets Property, Plant and Equipment 2,820 2,250 Current assets Inventory Trade receivables Bank 600 720 180 1,080 1,110 nil 1.500 4.320 2,190 4.440 Total assets Equity and liabilities 600 600 Equity Equity shares of 1 each Property revaluation reserve Retained earnings 270 nil 240 780 1.050 1,650 240 840 Non-current liabilities Lease obligations (note (ii)) 7% loan notes 10% loan notes Deferred tax Government grants 960 nil 900 nil 900 nil 180 360 1,440 30 nil 1,890 Current liabilities Bank overdraft Trade payables Government grants Lease obligations (note (iii)) Taxation nil 930 120 nil 180 360 850 nil 150 350 1.230 4.320 1,710 4.440 Total equity and liabilities Notes: (1) Both companies have the same financial year-end. They both operate from similar premises located in the Dublin area. Initial enquiries made by Agrippa plc suggest that both companies would be receptive to a takeover. Additional details of the two companies' property, plant and equipment are as follows: Continued on the next page Page 3 of 7 Question I continued REQUIRED: (a) (b) Calculate for Finch Ltd. the ratios equivalent to those given above for Rhoda Ltd. (20 marks) Draft a report which advises the directors of Agrippa pic on their acquisition decision, based on an assessment of the financial performance and position of both Rhoda Ltd. and Finch Ltd. for the year ended 31" March 2020. (40 Marks) c) Outline the limitations of using ratios for analysis of a company's performance and position and discuss other information that may be useful to the management of Agrippa ple when making an acquisition decision. (20 Marks) Total: 80 Marks Page 5 of 7