QUESTION 4 GANYO plc has embarked on a programme of growth through acquisitions and has identified Alpha Ltd and Beta Ltd as companies in the same industrial sector, as potential targets. Using recent financial statement of both Alpha and Beta and further information obtained from a trade association, GANYO plc has managed to build up the following comparability table: Alpha Beta Industrial average Profitability ratios ROCE before tax % 22 28 20 Return on equity % Net profit margin% Gross profit margin% Activity ratios Total assets turnover times Non-current asset turnover = times Receivables collection period in weeks 8 Inventory holding period in weeks 13.5 Liquidity ratios Current ratio 1.7 2.8 Acid test 10.9 1.3 Debt - equity ratio % 18 11 25 22 15 5 12 120 1.5 2.3 14 2.5 12 5.1 5.1 16.5 14 21 1.8 0.5 80 120 65 Required: (a) Prepare a performance report for the two companies for consideration by the directors of GANYO plc indicating which of the two companies you consider to be a better acquisition. (13 marks) (b) Indicate what further information is needed before a final decision can be made.(2 marks) (C) Briefly explain seven limitations of ratio analysis