Saddam Ltd is considering the possibility of diversifying its operations and has identified three firms in the same industrial sector as potential takeover targets. The following information in respect of the companies has been extracted from their most recent financial statements.

Required:
(a) Prepare a report for the directors of Saddam Ltd, assessing the performance of the three companies from the information provided and identifying areas which you consider require further investigation before a final decision is made.
(b) Discuss briefly why a firm’s statement of financial position is unlikely to show the true market value of thebusiness.

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Baba LtdCamel Ltd 23.7 ROCE before tax % Net profit % Asset turnover ratio Gross profit% Sales/non-current assets Sales/current assets Current ratio Acid test ratio Average number of weeks receivables outstanding Average number of weeks' inventory held Ordinary dividend % Diidend cover