Write a report comparing the performance of company X and company Y using the relevant ratios, making appropriate recommendations as how performance could be improved.
Task 2 (25 marks)
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Company X
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Company Y
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INCOME STATEMENTS
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£`000
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£`000
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£`000
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£`000
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Turnover
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80,000
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110,000
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Opening inventory
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26,000
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20,500
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Purchases
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51,000
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90,500
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77,000
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111,000
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Closing inventory
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(14,000)
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(18,000)
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Cost of Sales
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(63,000)
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(93,000)
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Gross profit
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17,000
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17,000
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Expenses
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Depreciation
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(1,200)
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(4,000)
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Other expenses
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(9,300)
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(4,500)
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(10,500)
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(8,500)
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Operating profit
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6,500
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8,500
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Interest paid
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(500)
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(1,000)
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Profit before tax
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6,000
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7,500
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Taxation
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(1,400)
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(1,700)
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Net Profit
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4,600
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5,800
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Statement of Financial Position
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ASSETS
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Non-current Assets
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Equipment at cost
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12,000
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22,500
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Depreciation
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(8,000)
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(6,500)
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Net Book Value
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4,000
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16,000
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Current Assets
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Inventory
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14,000
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18,000
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Receivables
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22,000
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19,000
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Bank
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6,000
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3,500
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42,000
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40,500
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LIABILITIES
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Current Liabilities
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Trade payables
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(7,000)
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(12,000)
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Non-current Liabilities
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Bank loan
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(5,000)
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(10,000)
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Net Assets
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34,000
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34,500
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CAPITAL
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Ordinary share capital
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15,000
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22,000
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Retained profit
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19,000
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12,500
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34,000
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34,500
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£’000
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£’000
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Dividend Paid
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2,250
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3,300
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You are required to:
Write a report comparing the performance of company X and company Y using the relevant ratios, making appropriate recommendations as how performance could be improved. Discuss their relevant strengths and weaknesses of each ratios used.
Requirements of the report
The report should have:
- A word count of 1,500 words;
- A table of contents and a summary;
- A discussion of each ratio explaining its purpose, your observations and your interpretations.
- An overall conclusion summarizing your observations in relation to which company is better for investment;
- Good spelling and grammar;
- Appendices that support your arguments and calculations;
- You should clearly show all the formulae and calculations in the appendices. The figures should be rounded to 2 decimal places.
A specified word count of Task 2 refers to the main body of the report and does not include the title page, contents page and appendices.
Both Task 1 and Task 2 to be completed in the word document.
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