Question 6: (25) Ward is seeking to grow through acquisition and has identified two unlisted entities, Moon and Kirke, of similar size and operating in the same line of business but in different jurisdictions, as potential acquisition targets. Ward's chairman has confirmed that both entities are receptive to genuine offers. A board meeting has been scheduled to discuss the potential acquisition targets. Ward's chairman has requested that a report be prepared for the meeting which will include analysis of the following nine key financial ratios that board members use when considering acquisitions: Gross profit percentage Profit before tax as a percentage of revenue Return on capital employed Asset turnover (revenue/capital employed) Current ratio Gearing (debt/equity) Interest cover Average rate of borrowings Approximate rate of tax The most recent published statements of profit or loss and comprehensive income for both Moon and Kirke are presented below, together with extracts from their statements of financial position:

Statements of profit or loss and comprehensive Income Moon Kirke R000 R000 Revenue 6,340 6,800 Cost of sales (3,490) (4,060) Gross profit 2,850 2,740 Distribution costs (830) (650) Administrative expenses (670) (670) Share of profit of associate 210 Gains on held for trading assets 60 Finance costs (230) (190) Profit before tax 1,330 1,290 Income tax expense (350) (320) Profit for the year 980 970 Other comprehensive income Items that may be reclassified subsequently to profit or loss: Gains of available for sale assets 65 Items that will not be reclassified to profit or loss: Revaluation of PPE 450 Total comprehensive income 1,495 970 Extracts from statements of financial position Moon Kirke R000 R000 Total equity 5,100 4,250 Borrowings (long term) 2,800 3,750 Current assets 1,950 2,300 Current liabilities 1,680 1,560 Required: (a) Calculate the nine key ratios that the board use when considering acquisitions for Moon and Kirke. (b) Compare and contrast the financial performance and financial position of entities Moon and Kirke. (c) Explain what further information you would require in order to make an initial recommendation on which entity would be the most suitable target for acquisition.