The new managing director of Eatmore Ltd (a company in the food industry) has asked you to analyse and give your views on the relative profitability and liquidity of its two wholly-owned subsidiaries, Canned Ltd and Frozen Ltd (who process fruit and vegetables). There were no inter-company transactions.

You are required to:

Use the information to write a report to the managing director analysing the results of each company and commenting on any significant trends using these ratios: Profitability

1. Return on equity. 

2. Gross profit margin.

3. Net profit margin. 

4. Total asset turnover.

Liquidity

1. Current ratio

2. Quick ratio.

Information

This information has been extracted from the summarised financial statements of each company for the two years ended 31 December 20x8:

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ABRIDGED STATEMENT OF PROFIT OR LOSS & OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20x8 Canned Ltd Frozen Ltd Turnover Cost of sales Gross profit Depreciation Other costs PROFIT BEFORE TAX Capital and reserves Long-term liability Current liabilities Overdraft TOTAL EQUITY AND LIABILITIES Non-current assets Current assets 20x8 45 200 (38 400 Inventories Accounts receivable TOTAL ASSETS 00 00) 6 800 00 (500 00) (4 200 00) 2 100 00 ABRIDGED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20x8 Canned Ltd Frozen Ltd 20x8 10 500 00 2 100 00 8 500 00 3 400 00 00 8 300 00 9 300 00 6 900 00 16 200 00 24 500 00 20x7 38 100 00 (30 500 00) 7 600 00 (400 00) (5 800 00) 1 400 00 24 500 20x7 9 900 00 1 800 00 8 200 00 20x8 17 000 00 (11 200 00) 5 800 00 (500 00) (3 400 00) 1900 00 6 700 00 26 600 9 200 00 00 10 200 00 7 200 00 17 400 00 26 600 00 20x8 7 500 00 200 00 3 200 00 20x7 14 000 00 ***** (9 400 00) 4 600 00 (30000) (2 000 00) 2 300 00 4 600 00 15 500 00 3 500 00 1 800 00 10 200 00 12 000 00 15 500 00 20x7 6 800 00 0 00 2 200 00 2 100 00 11 100 00 2 500 00 2 300 00 6 300 00 8 600 00 11 100 00