Question 1 Sheffield Ltd is a British manufacturer of wrought iron gates, benches, and railings. The company has built a good reputation for its innovative designs and high quality and employs a large number of iron masters and apprentices. The high standard of craftmanship has enabled Sheffield Ltd to charge a premium price for its products. The majority of Sheffield Ltd's sales are to trade customers or for public projects, such as parks, schools and governmental buildings. Over the past two years, Sheffield Ltd has been facing intensified competition from other nationwide companies. One of its key competitors, Iron King Ltd, has recently invested heavily on advertising. The success of this advertising campaign has started to take away business from Sheffield Ltd; last week Sheffield Ltd lost out to Iron King in a local government tender for providing railings and gates for a new public park in Sheffield. Iron King outsources the production of most of their products to sub- contractors and their prices are generally lower than Sheffield Ltd. An extract of Sheffield Ltd's financial statements for 2019 and 2020 are shown below. Sheffield Ltd - Profit and Loss Account Extracts Year to 31 Dec 2019 Year to 31 Dec 2020 '000s 745.0 '000s 762.0 Revenue Cost of sale (245.8) 499.2 (266.7) 495.3 Gross profit Administrative expenses Distribution costs Operating profit (260.7) (97.2) 141.3 (266.7) (101.4) 127.2 Interest costs (30.9) (37.5) 110.4 89.7 Profit after interest Taxation (38.9) 71.5 (31.4) 58.3 Profit after taxation Question 1 Sheffield Ltd is a British manufacturer of wrought iron gates, benches, and railings. The company has built a good reputation for its innovative designs and high quality and employs a large number of iron masters and apprentices. The high standard of craftmanship has enabled Sheffield Ltd to charge a premium price for its products. The majority of Sheffield Ltd's sales are to trade customers or for public projects, such as parks, schools and governmental buildings. Over the past two years, Sheffield Ltd has been facing intensified competition from other nationwide companies. One of its key competitors, Iron King Ltd, has recently invested heavily on advertising. The success of this advertising campaign has started to take away business from Sheffield Ltd; last week Sheffield Ltd lost out to Iron King in a local government tender for providing railings and gates for a new public park in Sheffield. Iron King outsources the production of most of their products to sub- contractors and their prices are generally lower than Sheffield Ltd. An extract of Sheffield Ltd's financial statements for 2019 and 2020 are shown below. Sheffield Ltd - Profit and Loss Account Extracts Year to 31 Dec 2019 Year to 31 Dec 2020 '000s 745.0 '000s 762.0 Revenue Cost of sale (245.8) 499.2 (266.7) 495.3 Gross profit Administrative expenses Distribution costs Operating profit (260.7) (97.2) 141.3 (266.7) (101.4) 127.2 Interest costs (30.9) (37.5) 110.4 89.7 Profit after interest Taxation (38.9) 71.5 (31.4) 58.3 Profit after taxation
