You are given the attached information about Fred pic, comprising summarized P&L accounts, summarized balance sheets and some suggested ratio calculations. You should note that there may be alternative ways of calculating some of these ratios. The holder of a small number of the ordinary shares in the business has come to you for help and advice. There are a number of things they do not properly understand, and a friend of theirs who is an accountancy student has suggested that some of the ratios show a distinctly unsatisfactory position, and that holder should sell their shares as quickly as possible.
Required:
Write a report to the shareholder commenting on the apparent position and prospects of Fred pic, as far as the information permits. Your report should include reference to liquidity and profitability aspects, and should advise whether, in your view, the shares should indeed be sold as soon as possible.
Fred pic
Some possible ratio calculations (which can be taken as arithmetically correct).

Fred pic
Summarized balance sheets at year-end (£m)

Transcribed Image Text:

20X2 20X1 Current ratio Acid test ratio ROCE eps Trade debtors' turnover Trade creditors turnover Gross profit % Operating profit % Stock turnover Gearing 12/147-8.2% 57/249-: 22.9% 31/190= 16.3p 56/1 72-: 32.6% 15/172-8,7% 41/161-25.5% 22/190 11.6p 4/910 x 365 2 days 60/730 x 365-30 days 180/910= 19.8% 57310 = 6.3 p 42/730 x 365= 21 days 61/188-32.4% 4/775 x 365 2 days 60/633 x 365 35 days 142775 18.3% 41775 = 5.3% 41/633 x 365-24 days 3 1/160-06% 20X2 20X1 Fixed assets tangible -not yet in use - in use 49 295 344 237 278 investments loan redemption fund 346 280 Current assets 41 Stocks debtors trade 42 4 - other 8 bank cash 2 2 54 2 56 Creditors-due within 1 year - trade other 60 87 112 147 172 Net current liabilities Total assets less current liabilities Creditors-due between one and five 93 253 61 116 164 Provision for liabilities and charges Net assets Capital and reserves 188 160 19 46 19 46 ordinary shares of 10p each preference shares of £1 each share premium profit and loss account 122 188 94 160 Fred plc Summarized P&L accounts for the year (Em) 910 730 180 20X1 775 633 142 Sales Raw materials and consumables Staff costs Depreciation of tangible fixed assets Other operating charges 12 104 38 127 Other operating income Net interest payable Profit sharing employees Taxation Preference dividends Ordinary dividends Note 57 41 37 50 17 36 12 24 31 20 Net interest payable: 12 interest payable interest receivable interest capitalized