Blane Ltd is a family-owned clothes manufacturer run by, the long-standing chairman and managing director Barry...

Transcribed Image Text:

Blane Ltd is a family-owned clothes manufacturer run by, the long-standing chairman and managing director Barry Blane. On 1 January 2018 Barry retired, and his son Simon took over. Simon aimed to expand the business, and by May 2018 he had negotiated a three- year contract with a large clothes retailer to make a range of sports and leisurewear items. Sales revenue from the contract amounts to £2.5 million each year, and Blane Ltd needed to invest in new equipment and premises to meet this demand. Financial information concerning the business is given below: Income statements for the years ended 31 December 2018 £'000 Revenue Cost of Sales Gross Profit Operating expenses Depreciation Operating profit Interest charges Profit before exceptional items Loss on disposal of non-current assets Profit before Tax Taxation Profit for the year Statements of financial position as at 31 December Non-current assets: Property, Plant and Equipment (Net Book Value) Plant and equipment (Net Book Value) Current assets Inventories Trade receivables Total assets Equity Share capital Reserves 2017 £'000 15,100 12,800 (7,800) (5,600) 7,200 Non-current liabilities Borrowing loans Current liabilities Trade payables Taxation Short-term borrowings (all bank overdraft) Total equity and liabilities 7,300 (5,075) (4,300) (500) (300) 1,725 2,600 (691) (228) 1,034 2,372 (180) 854 2,372 (179) (498) 675 1,874 2018 2017 £'000 £'000 8,200 5,600 4,045 3,700 12,245 9,300 3,600 2,200 2,100 1,350 5,800 3,450 18,045 12,750 2,000 2,000 7,127 6,952 9,127 8,952 5,639 2,100 1,100 700 179 498 500 2,000 3,279 1,698 18,045 12,750 Required: a) Calculate, for both 2017 and 2018 (using year-end figures for statement of financial position items), the following ratios (showing fully your workings): i. operating profit margin ii. return on capital employed iii. current ratio iv. gearing ratio trade receivables settlement period sales revenue to capital employed. V. vi. (12 marks) b) By applying the above ratios in (a) and three additional ratios, comment on the results of the expansion programme of Blane Ltd. in terms of: a. Profitability b. Liquidity and working capital management c. Long-term solvency d. Calculation of three additional ratios (7 marks) (6 marks) (3 marks) (3 marks) c) What additional information would be provided from reviewing a cashflow in the case of Blane Ltd? (4 marks) Blane Ltd is a family-owned clothes manufacturer run by, the long-standing chairman and managing director Barry Blane. On 1 January 2018 Barry retired, and his son Simon took over. Simon aimed to expand the business, and by May 2018 he had negotiated a three- year contract with a large clothes retailer to make a range of sports and leisurewear items. Sales revenue from the contract amounts to £2.5 million each year, and Blane Ltd needed to invest in new equipment and premises to meet this demand. Financial information concerning the business is given below: Income statements for the years ended 31 December 2018 £'000 Revenue Cost of Sales Gross Profit Operating expenses Depreciation Operating profit Interest charges Profit before exceptional items Loss on disposal of non-current assets Profit before Tax Taxation Profit for the year Statements of financial position as at 31 December Non-current assets: Property, Plant and Equipment (Net Book Value) Plant and equipment (Net Book Value) Current assets Inventories Trade receivables Total assets Equity Share capital Reserves 2017 £'000 15,100 12,800 (7,800) (5,600) 7,200 Non-current liabilities Borrowing loans Current liabilities Trade payables Taxation Short-term borrowings (all bank overdraft) Total equity and liabilities 7,300 (5,075) (4,300) (500) (300) 1,725 2,600 (691) (228) 1,034 2,372 (180) 854 2,372 (179) (498) 675 1,874 2018 2017 £'000 £'000 8,200 5,600 4,045 3,700 12,245 9,300 3,600 2,200 2,100 1,350 5,800 3,450 18,045 12,750 2,000 2,000 7,127 6,952 9,127 8,952 5,639 2,100 1,100 700 179 498 500 2,000 3,279 1,698 18,045 12,750 Required: a) Calculate, for both 2017 and 2018 (using year-end figures for statement of financial position items), the following ratios (showing fully your workings): i. operating profit margin ii. return on capital employed iii. current ratio iv. gearing ratio trade receivables settlement period sales revenue to capital employed. V. vi. (12 marks) b) By applying the above ratios in (a) and three additional ratios, comment on the results of the expansion programme of Blane Ltd. in terms of: a. Profitability b. Liquidity and working capital management c. Long-term solvency d. Calculation of three additional ratios (7 marks) (6 marks) (3 marks) (3 marks) c) What additional information would be provided from reviewing a cashflow in the case of Blane Ltd? (4 marks)

Answer rating: 100% (QA)

STEP... View the full answer