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Statement of profit & loss for the Cong Industries Ltd. in respect of the year ended 31 December. 2016 2017 6000 6'000 Revenue 790 924 COS (618) (730) Gross Profit 172 194 Admin expenses (36) (32) Distribution expenses (84) (94) Depreciation (8) (10) Operating Profit 44 58 Interest payable (-) (10) Profit before tax 44 48 Other information: Included within the figure for sales are sales made on credit of (726,000 in respect of 2016 and (870,000 in respect of 2017. The company allows 60-day credit terms. Purchases made on credit were (538,000 in respect of 2016, and (738,000 in respect of 2017. The industry in which Cong Industries competes has always operated on low liquidity levels, current ratios of 1.5 : 1 being quite common. Gross profitability in the industry averages around 25%, while return to shareholders on their capital employed averages around 20% in the industry. Earnings per share in comparable companies averages 15 cent per share, while total asset turnover is in the order of 2.5 times. The average debt/equity ratio is 1:3 while credit granted to customers in the industry averages 35 days.Cong Industries Lid. has been operating for two years. On 1" January, 2017 the directors decided to raise additional capital in order to expand the business. The funds were raised by means of 10 Loan Stock of (100,000. The directors are now evaluating the position of the company and the benefits or otherwise derived from this expansion strategy. The following is the summarized information relating to the two years for which the company has been operating: Statement of financial position for Cong Industries Ltd at 31 December 2016 2017 6.000 E.000 Non-current assets Property plant & equipment 80 110 Accumulated depreciation (8) (18) 72 92 Current assets Inventories 80 88 Trade receivables 130 210 Bank 2 68 212 366 Total assets 284 458 Equity Share capital (nominal value 50c 180 180 each i.e. 360,000 in issue) Retained earnings 22 70 Total equity 202 250 Non-current liabilities Long-term borrowings (10%) 100 Current liabilities Trade and other payables 79 107 Accruals 3 1 Total current liabilities 82 108 Total liabilities 82 208 Total equity and liabilities 284 458Requirements: (a) Calculate ratios on profitability, liquidity, gearing and shareholders' investment which you believe would be relevant in interpreting the affairs of the company (b) Based on your analysis in part (a), comment on the position of the company and any other factors you consider significant. You should also comment on your assessment of the success or otherwise of the expansion strategy
