You are a financial adviser to a retailing company, PQ Ltd. You obtain the accounts of its main competitor operating in the same market, ABC Ltd, and an extract of the comparison of statement of financial position is shown below: : Balance sheets as at 31 March 20x0 PQ Ltd ABC Ltd kOOO K000 K000 K000 K000 K000 Non-current assets Land and buildings 381 286 Fixtures and fittings 342 218 Vehicles 62 59 785 563 Current assets Inventory 96 122 Trade debtors 166 124 Cash 9 6 271 252 Current liabilities Overdraft 20 21 Trade creditors 132 97 Accruals 48 42 200 160 71 92 856 655 Shareholders’ funds Share capital 470 350 Capital reserves 35 65 Income statement 287 185 792 600 10% debentures 64 55 856 655 Income statement for the year ended 31 march 20x0 PQ Ltd ABC Ltd K000 K000 K000 k000 Sales(on credit) 570 747 Cost of sales Opening inventory 92 102 Purchase (on credit) 381 588 473 690 Closing inventory 96 122 377 568 Gross income 193 179 Distribution costs 60 64 Administration costs 29 31 89 95 104 84 Interest charge 8 9 Net Income 96 75 Taxation 45 37 51 38 Dividend 37 24 Retained profit for the year 14 14 Upon analysis this information, you observe that it reveals significant differences between the companies. REQUIRED. a) Calculate and identify the key differences in profitability and in working capital management as between the two companies. b) based upon the analysis at(a)above, recommend actions which the management of PQ Ltd should consider in order to improve their financial performance. c) State any reservations you may have above drawing conclusions from the comparative analysis of the two companies.
You are a financial adviser to a retailing company, PQ Ltd. You obtain the accounts of its main
competitor operating in the same market, ABC Ltd, and an extract of the comparison of
Balance sheets as at 31 March 20x0
PQ Ltd ABC Ltd
kOOO K000 K000 K000 K000 K000
Non-current assets
Land and buildings 381 286
Fixtures and fittings 342 218
Vehicles 62 59
785 563
Current assets
Inventory 96 122
Trade debtors 166 124
Cash 9 6
271 252
Current liabilities
Overdraft 20 21
Trade creditors 132 97
Accruals 48 42
200 160
71 92
856 655
Shareholders’ funds
Share capital 470 350
Capital reserves 35 65
Income statement 287 185
792 600
10% debentures 64 55
856 655
Income statement for the year ended 31 march 20x0
PQ Ltd ABC Ltd
K000 K000 K000 k000
Sales(on credit) 570 747
Cost of sales
Opening inventory 92 102
Purchase (on credit) 381 588
473 690
Closing inventory 96 122
377 568
Gross income 193 179
Distribution costs 60 64
Administration costs 29 31
89 95
104 84
Interest charge 8 9
Net Income 96 75
51 38
Dividend 37 24
Retained profit for the year 14 14
Upon analysis this information, you observe that it reveals significant differences between the companies.
REQUIRED.
a) Calculate and identify the key differences in profitability and in
management as between the two companies.
b) based upon the analysis at(a)above, recommend actions which the management of PQ
Ltd should consider in order to improve their financial performance.
c) State any reservations you may have above drawing conclusions from the
comparative analysis of the two companies.
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