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Financial Accounting Intro Concepts Meth/Uses

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter4: Balance Sheet: Presenting And Analyzing Resources And Financing

Section: Chapter Questions

Problem 13E

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Question

You are financial adviser to a retailing company, Us Ltd. You obtain the accounts of its main competitor operating in the same market. Them Lbt, and extract the comparison shown below:

Balance sheets as at 31 March 20x0

Us Ltd Them 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

Us Ltd Them 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 us 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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