Individual report
Sanmu
AssignmentBrief.docx
Assignment brief
You have been asked by a client to advice on the financial position of two companies in a similar trade sector. You have been supplied with the following financial statements.
Income Statement for the year ended 31 March 2016
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Nixon Ltd |
Zip Ltd |
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Notes |
£000 |
£000 |
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Revenue |
|
638 |
493 |
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Cost of sales |
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(331) |
(297) |
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|
–––––– |
–––––– |
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Gross profit |
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307 |
196 |
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Distribution costs |
|
(36) |
(29) |
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Administrative expenses |
1 |
(99) |
(46) |
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|
–––––– |
–––––– |
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Profit before taxation |
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172 |
121 |
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Taxation |
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(21) |
(22) |
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|
–––––– |
–––––– |
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Profit for the year |
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151 |
99 |
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====== |
====== |
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Statement of financial position as at 31 March 2016 |
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Notes |
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Nixon Ltd |
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Zip Ltd |
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Non‐current assets (NBV): |
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£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
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Property, plant and equipment |
1 |
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198 |
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111 |
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Current assets: |
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Inventory |
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60 |
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58 |
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Trade and other receivables |
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35 |
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43 |
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Cash and cash equivalents |
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2 |
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– |
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–––– |
97 |
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–––– |
101 |
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–––– |
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–––– |
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Total assets |
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295 |
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212 |
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Equity and liabilities: |
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==== |
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==== |
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Share capital (£1 share each) |
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50 |
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30 |
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Retained earnings |
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161 |
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66 |
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–––– |
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–––– |
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Non‐current liabilities: |
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211 |
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96 |
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Borrowings |
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– |
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20 |
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Current liabilities: |
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Trade and other payables |
2 |
74 |
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74 |
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Current tax payable |
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10 |
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12 |
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Bank overdraft |
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– |
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10 |
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–––– |
84 |
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–––– |
96 |
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–––– |
84 |
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–––– |
116 |
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–––– |
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–––– |
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Total equity and liabilities |
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295 |
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|
212 |
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==== |
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==== |
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Notes to the financial statements:
1. The non‐current assets held by the companies are as follows:
|
|
Nixon Ltd |
Zip Ltd |
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|
£000 |
£000 |
|
Land and buildings |
97 |
43 |
|
Fixtures and fittings |
28 |
17 |
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Motor vehicles |
73 |
51 |
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–––– |
–––– |
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|
198 |
111 |
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–––– |
–––– |
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2. Trade and other payables for both companies include a proposed dividend. Nixon Ltd has proposed a dividend of £50,000 and Zip Ltd a dividend of £40,000.
Required:
a. Calculate all the appropriate ratios (at least 2 from each group) and critically appraise the current financial position of each of the two companies. (40 marks)
b. Define working capital cycle and calculate the working capital cycle of both companies and discuss how a company can improve the working capital cycle? (30 marks)
c. What are the limitations of ratio analysis technique? Discuss in details. (30 marks)
Total Marks 100
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