SECTION A (COMPULSORY) Question 1 Cora PLC is a listed and well-established supermarket chain operating through much of the UK. Its summarised financial statements for the last 3 financial years, 2017 to 2019, are below: Cora PLC Income Statement for the year ended 30th April 2017 2018 2019 m m m Turnover 8,103 9,519 10,646 Cost of Sales (7,424) (8,682) (9,654) Gross profit 679 837 992 Operating Expenses (152) (212) (572) Operating Profit 527 625 420 Interest received 84 108 185 Interest paid (149) (180) (237) Profit Before Tax 462 553 368 Tax (162) (201) (225) Profit after tax 300 352 143 Dividends (21) (46) (33) Retained profit for the year 279 306 110 Statement of Financial Position as at 30th April 2017 m 2018 m 2019 m Non-Current Assets Property Machinery Investments 1,983 1,256 3 3,242 3,225 1,074 3 4,302 4,158 1,170 2 5,330 Current Assets Stock Debtors Securities Cash 320 30 2 38 390 347 75 306 447 1175 33 54 452 57 596 Total Assets Current Liabilities 3,632 5,477 5,926 Bank overdraft Trade creditors 495 608 1,103 (713) 2,529 750 678 1,428 (253) 4,049 693 750 1,443 (847) 4,483 Net current assets Total assets less current liabilities Non-Current Liabilities Long-term loan Total net assets 647 1,881 810 3,239 1112 3,371 Capital and reserves Share capital (1) Retained profit 1,485 396 1,881 2,536 703 3,239 2,558 813 3,371 PTO Additional information: 1. On 15 April 2019 a fire at one of the company's warehouses destroyed some of the stock, resulting in a damage valued at 300m. The charge for this damage was made against the operating expenses. 2. On 1 May 2019 a new CEO joined Cora PLC. On her first statement to the shareholders, she identified Mercator PLC, another supermarket chain, as the main competitor to her company. The summarised statements for Mercator PLC for the last 3 financial years, 2017 to 2019, are below: Mercator PLC Income Statement for the year ended 30th April Turnover Cost of Sales Gross profit Operating Expenses Operating Profit Interest received Interest paid Profit Before Tax Tax Profit after tax Dividends Retained profit for the year Statement of Financial Position as at 30th April 2017 2018 2019 m m m 10,395 11,720 13,043 (9,453) (10,575) (11,738) 942 1,145 1,305 (240) (315) (384) 702 830 921 119 119 177 (144) (173) (156) 677 776 942 (210) (245) (278) 467 531 664 (101) (146) (239) 366 385 425 Non-Current Assets Property Machinery Investments 2017 m 3,183 924 29 4,136 2018 m 3,732 1,089 32 4,853 2019 m 4,500 1,250 47 5,797 Current Assets Stock Debtors Securities Cash 462 138 78 209 887 5,023 542 170 36 165 913 5,766 543 116 333 261 1,253 7,050 Total Assets Current Liabilities Bank overdraft Trade creditors 723 722 1,445 (558) 3,578 815 834 1,649 (736) 4,117 962 867 1,829 (576) 5,221 Net current assets Total assets less current liabilities Non-Current Liabilities Long-term loan Total net assets Capital and reserves Share capital (1) Retained profit 1,470 2,108 1,350 758 2,108 1,608 2,509 1,366 1,143 2,509 1,259 3,962 2,394 1,568 3,962 Ratios for Cora PLC (Based on the above Financial Statements) 2017 Return on capital employed (ROCE %) 20.8% Gross Margin (GP %) 8.4% Operating Margin (OP %) 6.5% Asset Turnover (times) 3.2 Gearing (Debt/Equity) 0.3 Stock Turnover (days) 15.7 Receivable (days) 1.4 Payable days (trade) (days) 29.9 2018 15.4% 8.8% 6.6% 2.4 2019 9.4% 9.3% 3.9% 2.4 0.3 1.2 1.9 28.4 0.3 14.6 2.9 28.5 Ratios for Mercator PLC (Based on the above Financial Statements) 2017 2018 Return on capital employed (ROCE %) 19.6% 20.2% Gross Margin (GP %) 9.1% 9.8% Operating Margin (OP %) 6.8% 7.1% Asset Turnover (times) 2.9 2.8 Gearing (Debt/Equity) 0.7 0.6 Stock Turnover (days) 17.8 18.7 Receivable (days) 4.8 5.3 Payable days (trade) (days) 27.9 28.8 2019 17.6% 10.0% 7.1% 2.5 0.3 16.9 3.2 27.0 Required: a) Make the necessary adjustments and recalculate the 2019 ratios for Cora PLC. Explain why these adjustments are necessary to provide a more meaningful interpretation of Cora's underlying performance