Drucker plc is a public listed wholesaler. Its summarised

Drucker plc is a public listed wholesaler. Its summarised financial statements for the year ended 31 December 2013 (and 2012 comparatives) are as follows:


2013

2012


€ million

€ million


Statements of profit or loss and other comprehensive income for the years ended 31 December

Revenue

275

200

Cost of sales

(200)

(100)

Gross profit

75

100

Operating costs

(36)

(30)

Investment income

-

2

Gains on revaluation of investments held at fair value through P/L

(5)

10

Finance costs

(5)

(5)

Profit (loss) before taxation

29

77

Income tax expense

(4)

(15)

Profit for the year

25

62

Other comprehensive income



(Amounts that will not be reclassified to profit or loss)



Revaluation losses on property plant & equipment

(45)

Total comprehensive income (loss) for the year

(20)

62




Statements of Financial Position as at 31 December:



2013

2012


€ million

€ million

Assets



Non-current assets:



Property, plant and equipment

215

245

Investments at fair value through profit or loss

35

40


250

285

Current assets



Inventory

40

19

Trade receivables

52

28

Bank

10


92

57

Total assets

342

342

Equity and liabilities



Equity:



Equity shares of €1 each

120

120

Revaluation reserve

10

55

Retained earnings

90

65


220

240

Non-current liabilities:



Bank loan

50

50

Current liabilities:



Trade payables

50

39

Bank overdraft

20

Current tax payable

2

13


72

52

Total equity and liabilities

342

342




You are a newly recruited accountant working for Drucker plc. The draft financial statements for year ended 31 December 2013 have just been produced. Your managing director, Tom Kirby, has asked you to explain to him what the above financial statements mean for the company’s performance for the year 2013 and its financial position at 31 December 2013. He makes you aware of the following points and opinions:

  1. Drucker plc has traditionally been very profitable, but in recent years has been finding it difficult to keep up its sales level due to the effects of internet sales. Basically it finds more customers are buying directly online from suppliers and cutting out the middleman, which includes Drucker as a wholesaler. To counteract this, on 1 January 2013, Drucker launched a strategy of cutting its prices in the hope that this would generate additional sales volume and profits.
  2. To support the new strategy and allow faster movement of goods, a new product movement and control system was commissioned and installed on 1 January 2013 at a cost of €40 million. This is being depreciated over a five-year useful economic life. The old system was disposed of for nil consideration on the same date, but had been carried at €15 million at the date of disposal. The loss was taken to Cost of Sales, as is depreciation. No other non-current assets were acquired or disposed of in either of the two years.
  3. Tom expresses the opinion that this strategy has not failed so far, as the total on the statement of financial position has remained the same from year to year. This proves (he claims) the company has retained its book value and therefore has not suffered any deterioration in performance from 2012 to 2013.
  4. The share price has declined from €2.80 per share on 31 December 2012 to €1.60 per share on 31 December 2013. Tom does not understand the reasons for this.
  5. Tom is aware that there are valuable tools for analysing profitability, liquidity and efficiency. However, he has no knowledge of how to calculate or interpret these.

Calculate at least eight suitable ratios for each financial year in order to assist in addressing the issues raised by the managing director.


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