Question 2

The following are key extracts from the financial statements and market data of Kings Motors PLC and its competitor LSE Motors PLC for financial years ending 31st of December 2020 and 2021:

Kings Motors PLC			LSE Motors PLC
	2020	2021		2020	2021
Revenue	26,000,000	132,000,000	Revenue	900,000,000	950,000,000
Gross Profit	15,000,000	80,000,000	Gross Profit	300,000,000	320,000,000
Operating Profit	(35,000,000)	12,000,000	Operating Profit	120,000,000	160,000,000
Interest Expense	(2,000,000)	(8,000,000)	Interest Expense	(20,000,000)	(30,000,000)
Profit for The Year	(37,000,000)	4,000,000	Profit for The Year	100,000,000	130,000,000
Trade Receivables	3,000,000	19,000,000	Trade Receivables	25,000,000	30,000,000
Inventories	5,000,000	12,000,000	Inventories	80,000,000	90,000,000
Cash	36,000,000	60,000,000	Cash	50,000,000	60,000,000
Trade Payable	5,000,000	18,000,000	Trade Payable	120,000,000	150,000,000
Long term Loan	4,000,000	35,000,000	Long term Loan	250,000,000	400,000,000
Share Capital (100)	5,000,000	25,000,000	Share Capital (1)	250,000,000	300,000,000
Retained Earnings	7,000,000	11,000,000	Retained Earnings	200,000,000	285,000,000
Dividends (Total Payout)	0	0	Dividends (Total Payout)	30,000,000	45,000,000
Share Price (per share)	20	100	Share Price (per share)	670	650
Cash from operations	2,000,000	6,000,000	Cash from operations	(35,000,000)	(50,000,000)

1. Discuss three financial ratios you might consider if you were a supplier to Kings Motors Ltd and they asked for 10,000,000 of purchases on credit in 2021. Please ensure to justify your chosen ratios and state whether you agree to this deal? Please ensure in your answers to make clear what insights can be drawn from each of your chosen ratios. Please also discuss what further information you would request from or about Kings Motors PLCs before offering your product or services on credit?

(10 marks)