Chelsea plc has embarked on a programme of growth through acquisitions and has identified Kensington Ltd and Wimbledon Ltd as companies in the same industrial sector, as potential targets. Using recent financial statements of both Kensington and Wimbledon and further information obtained from a trade association, Chelsea plc has managed to build up the following comparability table:

Required:
(a) Prepare a performance report for the two companies for consideration by the directors of Chelsea plc indicating which of the two companies you consider to be a better acquisition.
(b) Indicate what further information is needed before a final decision can bemade.

Transcribed Image Text:

Kensington Wimbledon Industrial average Profitability ratios 20 15 28 ROCE before tax % Return on equity % Net profit margin % Gross profit ratio 96 18 25 12 20 Activity ratios Total assets turnover times Non-current asset turnover times Receivables collection period in weeks Inventoryholding period in weeks 15 2.3 8.0 210 4.0 2.0 5.1 4.0 2.5 5.I 6.5 13.0 Liquidity ratios Current ratio Acid test 1.8 0.5 80.0 I .7 0.9 20.0 2.8 1.3 65.0 Debt-equity ratio %