Question

1 Approved Answer

Posted on Jul 30, 2024

Question 1 The scenario Mars Holdings Plc has a portfolio of investments in subsidiary companies and is seeking another acquisition that complements the others. The

image text in transcribed

Question 1 The scenario Mars Holdings Plc has a portfolio of investments in subsidiary companies and is seeking another acquisition that complements the others. The subsidiary companies already in the group include: machinery and commercial vehicle dealership; finance company, equipment leasing company; haulage company with a fleet of 200 heavy goods vehicles (HGV), and a chain of value hotels across the UK, one of which is making a loss. Two possible acquisition targets have been identified: Wyre Child Ltd is based in leased converted hotels and provides care services for young people unable to be cared for in the foster system. Mars Holdings Plc are looking into the possibility of converting their failing hotel into a provider of care services and Wyre Child Ltd is looking for another property to continue expanding around the UK. Border Commercials Ltd has a large unit and caters for the storage and repair of up to 60 commercial vehicles at one time and has the potential for more space as it is based in a large empty industrial area. Border Commercials is looking for a contract with a fleet operator to stabilise their income and growth. Extracts from the financial statements of both target companies are shown below: Statements of Profit or Loss (SOPL) WYRE CHILD SERVICES Ltd BORDER COMMERCIALS Ltd vertical analysis 942,981 100% vertical analysis Turnover 1,542,280 100% Cost of sales (783,796) 50.82% (375,852) 29.85% Gross profit 758,484 49.18% 942,981 70.15% Administrative expenses Other operating income (367,548) 9,015 23.83% 0.58% (419,765) 0 33.34% 0.00% Operating profit 399,951 25.93% 463,333 36.80% Other interest receivable and similar income Interest payable and similar charges 1,204 0 0.08% 0.00% 1,508 (38,505) 0.12% 3.06% Profit on ordinary activities before taxation 401,155 26.01% 426,336 33.86% Page 4 of 13 Tax on profit on ordinary activities (39,405) 2.55% (63,223) 5.02% Profit for the year 361,750 23.46% 363,114 28.84% + Statements of Financial Position (SOFP) WYRE CHILD SERVICES Ltd BORDER COMMERCIALS Ltd f vertical analysis vertical analysis Fixed assets Tangible assets 4,656 1.1% 291,546 30.9% Total Non Current Assets 4,656 1.1% 291,546 30.9% Current assets Trade receivables Cash at bank and in hand 78,175 338,855 18.5% 80.4% 285,275 366,160 30.3% 38.8% Total Current Assets 417,030 98.9% 651,435 69.1% Total Assets 421,686 100.0% 942,981 100.0% Liabilities 207,224 49.1% 122,944 13.0% Current liability: Trade payables Non current liability: Bank borrowing 0 0.0% 371,335 39.4% Total Liabilities 207,224 49.1% 494,279 52.4% Equity and reserves Called up share capital Profit and loss account 2 214,460 0.0% 50.9% 0.0% 47.6% 448,700 Total Equity 214,462 50.9% 448,702 47.6% Total Equity and Liabilities 421,686 100.0% 942,981 100.0% The ratio analysis below is in 4 categories (Profitability, Management Efficiency, Liquidity and Gearing), and needs completing: + Formulae WYRE CHILD BORDER SERVICES COMMERCIALS Ltd Ltd Ratios Profitability Ratios ROCE % 95% PBIT Cap Employed Return on Assets % PBIT Total Assets 95% Asset Turnover 3.7 Revenue Total Assets Gross Profit Margin % 49.2% Gross profit Revenue Net Profit Margin % PBIT Revenue 26% Efficiency Ratios Receivables Collection period (R) Trade receivables Sales x 365 days 19 Payables, payment period (P) Trade payables Cost of sales x 365 days 97 Page 7 of 13 R-P Cash Cycle days -78 Liquidity Ratios Current Ratio X:1 2.0 Current Assets Current liabilities Financial Risk or GEARING Ratios Gearing Fixed int capital Total capital employed % 0.0% Interest cover ratio 0.0 PBIT Interest charges Requirements 1.1 Prepare a business report, maximum 2 pages long (approximately 800 words) with an appendix for your ratio analysis. It is to be addressed to the board of directors of Mars Holdings Plc. You must evaluate the financial statements, interpret the ratio analysis and make a convincing argument for investment in one of the two target companies. Your report should be supported with academic references throughout, and your ratio analysis should be put in an appendix to the report. (800 words, 30 marks) 1.2 Critically evaluate the working capital management (WCM) of both companies using academic references and draw conclusions on which is stronger. (200 words, 5 marks) 1.3 Create a table that lists the advantages and disadvantages of all the finance options available to Mars Holdings Plc. Explain, with references, the source of finance you recommend as most suitable way to finance the investment in either Wyre Chid services Ltd or Border Commercial Ltd. (200 words, 5 marks) Question 1 The scenario Mars Holdings Plc has a portfolio of investments in subsidiary companies and is seeking another acquisition that complements the others. The subsidiary companies already in the group include: machinery and commercial vehicle dealership; finance company, equipment leasing company; haulage company with a fleet of 200 heavy goods vehicles (HGV), and a chain of value hotels across the UK, one of which is making a loss. Two possible acquisition targets have been identified: Wyre Child Ltd is based in leased converted hotels and provides care services for young people unable to be cared for in the foster system. Mars Holdings Plc are looking into the possibility of converting their failing hotel into a provider of care services and Wyre Child Ltd is looking for another property to continue expanding around the UK. Border Commercials Ltd has a large unit and caters for the storage and repair of up to 60 commercial vehicles at one time and has the potential for more space as it is based in a large empty industrial area. Border Commercials is looking for a contract with a fleet operator to stabilise their income and growth. Extracts from the financial statements of both target companies are shown below: Statements of Profit or Loss (SOPL) WYRE CHILD SERVICES Ltd BORDER COMMERCIALS Ltd vertical analysis 942,981 100% vertical analysis Turnover 1,542,280 100% Cost of sales (783,796) 50.82% (375,852) 29.85% Gross profit 758,484 49.18% 942,981 70.15% Administrative expenses Other operating income (367,548) 9,015 23.83% 0.58% (419,765) 0 33.34% 0.00% Operating profit 399,951 25.93% 463,333 36.80% Other interest receivable and similar income Interest payable and similar charges 1,204 0 0.08% 0.00% 1,508 (38,505) 0.12% 3.06% Profit on ordinary activities before taxation 401,155 26.01% 426,336 33.86% Page 4 of 13 Tax on profit on ordinary activities (39,405) 2.55% (63,223) 5.02% Profit for the year 361,750 23.46% 363,114 28.84% + Statements of Financial Position (SOFP) WYRE CHILD SERVICES Ltd BORDER COMMERCIALS Ltd f vertical analysis vertical analysis Fixed assets Tangible assets 4,656 1.1% 291,546 30.9% Total Non Current Assets 4,656 1.1% 291,546 30.9% Current assets Trade receivables Cash at bank and in hand 78,175 338,855 18.5% 80.4% 285,275 366,160 30.3% 38.8% Total Current Assets 417,030 98.9% 651,435 69.1% Total Assets 421,686 100.0% 942,981 100.0% Liabilities 207,224 49.1% 122,944 13.0% Current liability: Trade payables Non current liability: Bank borrowing 0 0.0% 371,335 39.4% Total Liabilities 207,224 49.1% 494,279 52.4% Equity and reserves Called up share capital Profit and loss account 2 214,460 0.0% 50.9% 0.0% 47.6% 448,700 Total Equity 214,462 50.9% 448,702 47.6% Total Equity and Liabilities 421,686 100.0% 942,981 100.0% The ratio analysis below is in 4 categories (Profitability, Management Efficiency, Liquidity and Gearing), and needs completing: + Formulae WYRE CHILD BORDER SERVICES COMMERCIALS Ltd Ltd Ratios Profitability Ratios ROCE % 95% PBIT Cap Employed Return on Assets % PBIT Total Assets 95% Asset Turnover 3.7 Revenue Total Assets Gross Profit Margin % 49.2% Gross profit Revenue Net Profit Margin % PBIT Revenue 26% Efficiency Ratios Receivables Collection period (R) Trade receivables Sales x 365 days 19 Payables, payment period (P) Trade payables Cost of sales x 365 days 97 Page 7 of 13 R-P Cash Cycle days -78 Liquidity Ratios Current Ratio X:1 2.0 Current Assets Current liabilities Financial Risk or GEARING Ratios Gearing Fixed int capital Total capital employed % 0.0% Interest cover ratio 0.0 PBIT Interest charges Requirements 1.1 Prepare a business report, maximum 2 pages long (approximately 800 words) with an appendix for your ratio analysis. It is to be addressed to the board of directors of Mars Holdings Plc. You must evaluate the financial statements, interpret the ratio analysis and make a convincing argument for investment in one of the two target companies. Your report should be supported with academic references throughout, and your ratio analysis should be put in an appendix to the report. (800 words, 30 marks) 1.2 Critically evaluate the working capital management (WCM) of both companies using academic references and draw conclusions on which is stronger. (200 words, 5 marks) 1.3 Create a table that lists the advantages and disadvantages of all the finance options available to Mars Holdings Plc. Explain, with references, the source of finance you recommend as most suitable way to finance the investment in either Wyre Chid services Ltd or Border Commercial Ltd. (200 words, 5 marks)