Your company is considering expansion into the market for organic products and have identified two companies for acquisition, SA Ltd and TY Ltd. The company is planning to carry a comparison of the companys financial position and performance as revealed by the below financial statements. The expectation is that any acquisition will be of 100% of the shares and will be financed principally by an issue of loan stock.

Income Statements for the years ended 31 December
	SA Ltd	TY Ltd
	000	000
Revenue	800	640
Cost of Sale	650	478
Gross Profit	150	162
Expenses	78	99
Net profit before interest & tax	72	63
Interest	9	6
Net profit before tax	63	57
Tax	20	17
Profit after tax	43	40

Statements of Financial Position as at 31 December 2021

	SA Ltd	TY Ltd
	000	000
Non-current assets
Freehold land and buildings	183	365
Plant, machinery and equipment	100	45
	283	410
Current Assets
Inventory	140	100
Receivables	90	143
	230	243
Total Assets	513	653
Equity & Liabilities
Equity
Ordinary share capital	165	255
Retained Earnings	127	114
	292	369
Non Current Liabilities
10% debentures	100	0
Current Liabilities
Bank Overdraft	19	117
Payables	82	150
Taxation	20	17
	121	284
Total Liabilities & equity	513	653

You have been requested to help produce a report for the board which compares the financial performance and financial position of the two companies. The report should covers :

1. Profitability
   1. Return on capital employed
   2. Gross profit Margin
   3. Net profit margin
   4. Asset
2. Efficiency
   1. Quick assets (acid- test) ratio
   2. Inventory turnover (in days)
   3. Receivables recovery period (in days)
   4. Payables payment period (in days).
3. Financial risk
   1. Interest cover
   2. Gearing ratio.
4. Brief analysis on the comparative profitability, efficiency and financial risk of the two companies as shown by the ratios calculated in 1, 2 and 3 above.

Required

You are required to prepare a draft of the contents for the report to the board Ratios should be shown to two decimal places except for those expressed to the nearest day. Marks are allocated as follows:

• Computation of the ratios set out in 1, 2 and 3 above.
• Brief analysis as required in 4 above.