Question B: Interpretation of business performance (40 marks):

The owners of A & E Enterprise have advertised to sell their business. The financial statements of the business for the last two years are shown in appendix B. A prospective investor has approached their bankers for support to help them make a bid to buy the business. The bankers have asked you as an independent assessor to evaluate the financial performance of A & E Enterprise using accounting ratios, and to advise them. You are required to:

1. Calculate one profitability ratio, one liquidity ratio, one efficiency ratio and one gearing ratio using information in the financial statements of A & E Enterprise. The calculations should be shown in the appendices of the report. Refer to appendix C for suggested ratios and their formulae. (4 marks)

2. Using the calculated ratios evaluate the financial performance of A & E Enterprise. (20 marks)

3. Explain with reasons whether the bank will likely provide financial support to their client to enable them buy A & E Enterprise. (8 marks)

4. Explain the limitations of the analysis and evaluation of the financial performance of A & E Enterprise undertaken for the period in view. (8 marks)

Appendix B: Financial statements of A & E Enterprise (a) Income Statement for the period ended 31st December 2019- Net Sales: Sales Sales returns 111,600 (1,500) LESS: Cost of sales: