Samoco plc operates a chain of in town grocery convenience stores and edge of town supermarkets across the UK. The company is expanding rapidly and is adding new stores every year. Below are the statements of profit or loss for the company for the years ended 31 May 2019 and 31 May 2018 together with statements of financial position at those dates.

Notes to the above financial statements:

• Samoco plc’s sales are made on an entirely cash basis, with no credit being allowed to customers at its convenience stores and supermarkets. Therefore, at 31 May 2019 and 31 May 2018 there were no monies owed by trade receivables.

• Finance expense is made up entirely of interest payable on the long-term borrowings.

• Samoco plc’s long-term borrowings are repayable by equal annual instalments over the next 10 years.

Required

(a) Using the financial statements for Samoco plc calculate for both years:

• Current ratio

• Quick ratio

• Inventory days

• Payables days

• The cash conversion cycle

• Gearing %

• Debt ratio

• Interest cover

(b) Using the ratios you have calculated and the financial statements, evaluate the liquidity, working capital and long-term solvency and financial stability of Samoco plc at 31 May 2019.

Transcribed Image Text:

Samoco plc: statements of profit or loss for the years ended 31 May 2019 and 31 May 2018 Revenue Cost of sales Gross profit Distribution and selling costs Administration expenses Operating profit Finance income Finance expense Profit before tax Income tax Profit for the year 2019 £m 13,663 12,570 1,093 121 240 732 20 104 648 162 486 2018 £m 12,249 11,330 919 108 225 586 15 84 517 129 388