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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)

 

 

 

 

 

 

Company X

 

Company Y

INCOME STATEMENTS

£`000

£`000

 

£`000

£`000

Turnover

 

80,000

   

110,000

Opening inventory

26,000

   

20,500

 

Purchases

51,000

   

90,500

 
 

77,000

   

111,000

 

Closing inventory

(14,000)

   

(18,000)

 

Cost of Sales

 

(63,000)

   

(93,000)

Gross profit

 

17,000

   

17,000

Expenses

         

Depreciation

(1,200)

   

(4,000)

 

Other expenses

(9,300)

   

(4,500)

 
   

(10,500)

   

(8,500)

Operating profit

 

6,500

   

8,500

Interest paid

 

(500)

   

(1,000)

Profit before tax

 

6,000

   

7,500

Taxation

 

(1,400)

   

(1,700)

Net Profit

 

4,600

   

5,800

           

Statement of Financial Position

     

ASSETS

         

Non-current Assets

         

Equipment at cost

12,000

   

22,500

 

Depreciation

(8,000)

   

(6,500)

 

Net Book Value

 

4,000

   

16,000

Current Assets

         

Inventory

14,000

   

18,000

 

Receivables

22,000

   

19,000

 

Bank

6,000

   

3,500

 
   

42,000

   

40,500

LIABILITIES

         

Current Liabilities

         

Trade payables

 

(7,000)

   

(12,000)

Non-current Liabilities

         

Bank loan

 

(5,000)

   

(10,000)

Net Assets

 

34,000

   

34,500

           

CAPITAL

         

Ordinary share capital

 

15,000

   

22,000

Retained profit

 

19,000

   

12,500

   

34,000

   

34,500

           

 

 

 

 

 

 

 

 

£’000

 

 

£’000

Dividend Paid

 

2,250

 

 

3,300


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:

  1. A word count of 1,500 words;
  2. A table of contents and a summary;
  3. A discussion of each ratio explaining its purpose, your observations and your interpretations.
  4. An overall conclusion summarizing your observations in relation to which company is better for investment;
  5. Good spelling and grammar;
  6. Appendices that support your arguments and calculations;
  7. 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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