The scenario Jupiter Holdings Plc has a portfolio of investments in subsidiary companies and is seeking another acquisition that complements the others. The subsidiary companies already in the group include: machinery and commercial vehicle dealership; finance company; equipment leasing company; haulage company with a fleet of 200 heavy goods vehicles (HGV), and a chain of value hotels across the UK, one of which is making a loss. Two possible acquisition targets have been identified: Griffin Care Services Ltd is based in leased converted hotels and provides care services for young people unable to be cared for in the foster system. Jupiter Holdings Plc are looking into the possibility of converting their failing hotel into a provider of care services and Griffin Care Services Ltd is looking for another property to continue expanding around the UK; Midlands Commercials Ltd has a large unit and caters for the storage and repair of up to 70 commercial vehicles at one time, and has the potential for more space as it is based in a large empty industrial area. Midlands Commercials is looking for a contract with a fleet operator to stabilise their income and growth. Extracts from the financial statements of both target companies are shown below: Statements of Profit or Loss (SoPL) GRIFFIN CARE SERVICES Ltd MIDLANDS COMMERCIALS Ltd vertical analysis vertical analysis Turnover 3,084,560 100% 3,147,375 100% Cost of sales (1,567,592) 50.82% (939,630) 29.85% __________ __________ Gross profit 1,516,968 49.18% 2,207,745 70.15% Administrative expenses (735,096) 23.83% (1,049,413) 33.34% Other operating income 18,030 0.58% 0 0.00% __________ __________ Operating profit 799,902 25.93% 1,158,333 36.80% Other interest receivable and similar income 2,408 0.08% 3,770 0.12% Interest payable and similar charges 0 0.00% (96,263) 3.06% __________ __________ Profit on ordinary activities before taxation 802,310 26.01% 1,065,840 33.86% Tax on profit on ordinary activities (78,810) 2.55% (158,056) 5.02% __________ __________ Profit for the year 723,500 23.46% 907,784 28.84% __________ __________ Statements of Financial Position (SoFP) GRIFFIN CARE SERVICES Ltd MIDLANDS COMMERCIALS Ltd vertical analysis vertical analysis Fixed assets Tangible assets 9,312 1.1% 728,865 27.2% Total Non Current Assets 9,312 1.1% 728,865 27.2% Current assets Trade receivables 156,350 18.5% 855,825 31.9% Cash at bank and in hand 677,710 80.4% 1,098,480 40.9% Total Current Assets 834,060 98.9% 1,954,305 72.8% Total Assets 843,372 100.0% 2,683,170 100.0% Liabilities Current liability: Trade payables 414,448 49.1% 245,888 9.2% Non current liability: Bank borrowing 0 0.0% 742,670 27.7% Total Liabilities 414,448 49.1% 988,558 36.8% Equity and reserves Called up share capital 2 0.0% 2 0.0% Profit and loss account 428,922 50.9% 1,694,610 63.2% Total Equity 428,924 50.9% 1,694,612 63.2% Total Equity and Liabilities 843,372 100.0% 2,683,170 100.0% The ratio analysis below is in 4 categories (Profitability, Management Efficiency, Liquidity and Gearing), and needs completing: Ratios Formulae GRIFFIN CARE SERVICES Ltd MIDLANDS COMMERCIALS Ltd Profitability Ratios ROCE PBIT % 95% Cap Employed Return on Assets PBIT % 95% Total Assets Asset Turnover Revenue x 3.7 Total Assets Gross Profit Margin Gross profit % 49.2% Revenue Net Profit Margin PBIT % 26% Revenue Efficiency Ratios Receivables Collection period (R) Trade receivables x 365 days 19 Sales Payables payment period (P) Trade payables x 365 days 97 Cost of sales Cash Cycle R - P days -78 Liquidity Ratios Current Ratio Current Assets x:1 2.0 Current liabilities Financial Risk or GEARING Ratios Gearing Fixed int capital % 0.0% Total capital employed Interest cover ratio PBIT x 0.0 Interest charges Requirements 1.1 Prepare a business report, maximum 2 pages long (approximately 800 words) with an appendix for your ratio analysis. It is to be addressed to the board of directors of Jupiter Holdings Plc. You must evaluate the financial statements, interpret the ratio analysis and make a convincing argument for investment in one of the two target companies. Your report should be supported with academic references throughout, and your ratio analysis should be put in an appendix to the report. (800 words, 30 marks) 1.2 Critically evaluate the working capital management (WCM) of both companies using academic references and draw conclusions on which is stronger. (200 words, 5 marks) 1.3 Create a table that lists the advantages and disadvantages of all the finance options available to Jupiter Holdings Plc. Explain, with references, the source of finance you recommend as most suitable way to finance the investment in either Griffin Care Services Ltd or Midlands Commercial Ltd. (200 words, 5 marks) Question 1 total 1200 words, 40 marks Marking guide Carefully examine the marking guide below to ensure that you structure your answer to include every element: Mark allocation RATIO CALCs INTERPRETATION OTHER TOTAL Q1.1 Profitability 4 3 7 Management efficiency 4 3 7 Liquidity 2 3 5 Gearing 2 3 5 Conclusion & recommendation 2 2 Credible academic citations 2 2 Layout, structure and grammar 2 2 Q1.2 Working Capital Management 5 5 Q1.3 Sources of finance 5 5 Total 12 12 16 40