The Directors of Hamble Ltd have identified two existing established businesses that may be suitable to purchase to fulfil their expansion plans and have asked you to calculate and compare ratios for both companies before making a recommendation on which company to purchase. Income Statements for the Year Ended 31st Dec 2020 Norwich Ltd '000 8,320 (6,020) 2,300 (1,048) 1,252 (20) 1,232 Sales revenue Cost of sales Gross profit Operating expenses Operating profit Finance charges Profit before tax Taxation Profit for the year SOFP (Balance Sheet) as at 31st Dec 2020 Norwich Ltd '000 Non-current assets Current assets Inventory Trade receivables Total assets Equity Share capital Reserves Current liabilities Trade payables Taxation Bank overdraft Non-current liabilities Loans Total equity and liabilities You are required to: 1,290 730 1,350 580 430 62 35 (62) 1,170 '000 502 2,020 2,522 1,930 527 65 2,522 Salford Ltd '000 '000 Salford Ltd 2,437 1,990 11,250 (9,030) 2,220 (1,535) 800 1,145 850 30 350- 685 (70) 615 (30) 585 E'000 198 4,427 4,625 1,945 1,230 1,450 4,625 1. Calculate the following ratios for both companies. You should then present your calculated ratios within your report in a simple table format for ease of comparison. a. Gross profit margin b. Operating profit margin c. Return on capital employed d. Asset turnover e. Current ratio f. Acid test g. Inventory days h. Trade receivable days i. Trade payable days j. Working capital cycle/operating cycle k. Gearing 1. Interest cover 2.300 2. Compare the performance of the two companies in the 4 key areas of profitability, efficiency, liquidity and gearing using the ratios calculated in part 1 and make a recommendation as to which of the two companies Hamble Ltd should consider purchasing. The Directors of Hamble Ltd have identified two existing established businesses that may be suitable to purchase to fulfil their expansion plans and have asked you to calculate and compare ratios for both companies before making a recommendation on which company to purchase. Income Statements for the Year Ended 31st Dec 2020 Norwich Ltd '000 8,320 (6,020) 2,300 (1,048) 1,252 (20) 1,232 Sales revenue Cost of sales Gross profit Operating expenses Operating profit Finance charges Profit before tax Taxation Profit for the year SOFP (Balance Sheet) as at 31st Dec 2020 Norwich Ltd '000 Non-current assets Current assets Inventory Trade receivables Total assets Equity Share capital Reserves Current liabilities Trade payables Taxation Bank overdraft Non-current liabilities Loans Total equity and liabilities You are required to: 1,290 730 1,350 580 430 62 35 (62) 1,170 '000 502 2,020 2,522 1,930 527 65 2,522 Salford Ltd '000 '000 Salford Ltd 2,437 1,990 11,250 (9,030) 2,220 (1,535) 800 1,145 850 30 350- 685 (70) 615 (30) 585 E'000 198 4,427 4,625 1,945 1,230 1,450 4,625 1. Calculate the following ratios for both companies. You should then present your calculated ratios within your report in a simple table format for ease of comparison. a. Gross profit margin b. Operating profit margin c. Return on capital employed d. Asset turnover e. Current ratio f. Acid test g. Inventory days h. Trade receivable days i. Trade payable days j. Working capital cycle/operating cycle k. Gearing 1. Interest cover 2.300 2. Compare the performance of the two companies in the 4 key areas of profitability, efficiency, liquidity and gearing using the ratios calculated in part 1 and make a recommendation as to which of the two companies Hamble Ltd should consider purchasing
