Assume that you are the Finance Director of a public company, Methods plc. Your Board of Directors have requested that you investigate the financial position of a company, Sutton plc, which the board are interested in purchasing

Assume that you are the Finance Director of a public company, Methods plc. Your Board of Directors have requested that you investigate the financial position of a company, Sutton plc, which the board are interested in purchasing. Your accountancy staff have reviewed the figurers for Sutton plc over a two year period and produced some significant ratios.

Sutton plc Accounting Ratios. 2014 2015 Return on capital employed 22.8% 18.8% Gross profit 50.2% 44.8% Mark-up 90.9% 84.4% Net profit 12.6% 9.0% Current assets 1.9 to 1 1.3 to 1 Acid test 1.5 to 1 1.2 to 1 Stock turnover 6.0 times 4.0 times Fixed assets turnover 2.9 times 2.7 times Trade debtors’ collection period 37 days 51 days Trade creditors’ payment period 20 days 35 days Dividend per share 21.6p 21.6p Earnings per share 61.86p 40.90p Price/earnings ratio 7.5 12.6

Consider these ratios and draft a preliminary report for the board of Methods plc on the financial position of Sutton plc. Identify any limitations your review has discovered and any further information you would wish to see before making a final recommendation to the board. Your report should be no longer than 2,000 words.