Question 1

Paul and Sons Ltd company senior management have been presented with thefollowing financial statement:

Paul and Sons Ltd

Income statement for the year ended 31st December

	2020		2021
	000	000	000	000
Sales revenue		4,600		4,840
Cost of sales
Opening inventories	250		300
Purchases	1400		2,450
	1,650		2,750
Closing inventories	(500)	(1,150)	(500)	(2,250)
Gross profit		3,450		2,590
Expenses		(1,250)		(510)
Operating Profit		2,200		2080
Interest payable		(30)		(40)
Profit before tax		2170		2040
Taxation		70		40
Profit for the year		2100		2000

Statement of financial position as of 31st December

	2020	2021
	000	000
ASSETS
Non-current assets
Machinery, vehicles and property	3,400	2,900
Current assets
Inventories	500	600
Trade receivables	800	850
Cash at bank	10	7
	1,310	1457
Total assets	4,710	4,357
EQUITY AND LIABILITIES
Equity
1 ordinary shares	2,757	2,820
Current liabilities Trade payables	410	329
	410	329
Non-current Liabilities
Long-term borrowings	1,543	1,208
Total equity and liabilities	4,710	4,357

Note: All sales and purchases were on credit.

a) Using six ratios we have learned, comment on the profitability (three ratios) and efficiency(three ratios) of the business. (15 marks)

Questions 2

Both Brighter Plc and Effi-power Plc operate wholesale electrical stores throughout south of Yorkshire. The financial statements of each company for the year ended 31 December are as follows:

Income statements for the year ended 31st December 2020

	Brighter	Effi-power
	000	000
Revenue	2,478.1	2,790.4
Cost of sales	(1,018.3)	(1,214.9)
Gross profit	1459.8	1575.5
Operating expenses	(308.5)	(408.6)
Operating profit	1151.3	1166.9
Interest payable	(19.4)	(27.5)
Profit before taxation	1131.9	1139.4

Taxation	(32)	(34.8)
Profit for the year	199.9	104.6

Statements of financial position as of 31st December 2020

	Brighter	Effi-power
ASSETS	000	000
Non-current assets
Property, plant and equipment Current assets	1447	1601.2
Inventories	1592	1403
Trade receivables	1176.4	1321.9
Cash at bank	184.8	191.6
	2953	2916.5
Total assets EQUITY AND LIABILITIES	4400	4517.7
Equity
1 ordinary shares	1320	1250
Retained earnings	1367.6	1624.6
	2687.6	2874.6
Non-current liabilities Borrowing - bank loan	1190	1250
Current liabilities
Trade payables	506.4	375.7
Taxation	16	17.4
	522.4	393.1
Total equity and liabilities	4400	4517.7

All purchases and sales were on credit. The market values of a share in Brither Plc and Effi- powerPlc at the end of year 2020 were 6.50 and 8.20, respectively.

1. Calculate the following ratios for both companies:
   1. Efficiency; (3 ratios) Average inventories turnover period, Average settlement period for trade receivables, average settlement period for trade payables
   2. Gearing; (2 ratios) Gearing ratio, Investment ratio
   3. Investment (2 ratios) P/E ratio, earning per share