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 Industrial Alpha Beta average Profitabilitv ratios ROCE before tax % 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 Inventory holding period in weeks Liquidity ratios Current ratio Acid test 28 20 15 25 12 20 12 8 6.5 21 13.5 1.8 2.8 0.5 0.9 Debt-equity ratio % 80 20 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