You have the following financial statements for two building companies and have been asked to compare them:

Income statements for the year to 31st December 2019

	Potts Ltd	Tony Ltd
	`000	`000
Sales	3500	3880
Cost of Sales	(900)	(1000)
Gross Profit	2600	2880
Operating expenses	(560)	(790)
Operating Profit	2040	2090
Interest Payable	(57)	(76)
Profit Before Taxation	1983	2014
Taxation	(80)	(68)
Profit After Taxation	1903	1946
Dividends	(35)	(42)
Retained Profits	1868	1904

Statements of financial position as at 31st December 2019

	Potts Ltd	Tony Ltd
	`000	`000
Non-current assets	3,056	3,768
Current assets
Inventories	350	245
Trade receivables	270	257
Cash at bank	120	80
Less: Current liabilities
Trade payables	(70)	(65)
Taxation	(68)	(42)
Non current liabilities
Long-term loan	(800)	(1000)
Net assets	2,858	3,243
Shareholders' funds
1 ordinary shares	700	800
Retained earnings	2,158	2,443
	2,858	3,243

Additional information:

• All purchases and sales were on credit

Required:

1. Calculate the following ratios for each company.

1. Pre-tax Return on Equity (use total shareholders funds as your denominator)
2. Operating profit margin
3. Net profit (before tax) margin
4. Trade receivable (debtor) period in days
5. Current ratio
6. Acid test ratio (Quick ratio)
7. Gearing ratio (use debt + equity as your denominator)
8. Interest cover
9. Dividend cover
10. Dividend per share (in pence)

[30 marks]

2. Amy Ltd supplies, installs and maintains burglar alarms systems for business clients. The accountant has provided a horizontal analysis and is concerned about the firm's performance.

Amy Ltd: comparison to previous year
	2017	2018	2019
Accounts receivable	1.20%	8.2%	7.4%
Inventory	8.4%	1.7%	4.9%
Sales	-3.0%	1.2%	5.4%
Non-current assets	2.3%	4.8%	7.6%
Borrowings	3%	9.8%	19.8%

Required: provide a brief report on the results of the analysis? Comments should include any concerns you may have.

(Maximum word count: 100)