Mary, who has limited knowledge of accounting, is considering investing some of her inheritance in ABC plc.
Question:
Mary, who has limited knowledge of accounting, is considering investing some of her inheritance in ABC plc. She has given you the ratios(please refer to the following table and directors' comments from ABC plc's Annual Report to aid your analysis of its performance and financial position:
Extract from Directors' Report:
"ABC has expanded in the year, investing in a new factory and machinery to improve production efficiencies. Revenue has increased by a healthy 24% on last year. We continue to monitor our costs carefully and maintain a constant dividend pay-out."
Question:
Use Directors' Report extract, please help to explain the meaning of the ratios, and advise Mary on the performance of the company in terms of:
a. Profitability
b. Liquidity and working capital management
c. Long-term solvency
d. Investment potential
b) Mary wants to invest in a business that is ethical and sustainable as well as profitable. Outline the sections in ABC plc's Annual Report that should assist her in an assessment of its non-financial activities, and how this information may enhance her overall assessment of the business.
c) Explain how your evaluation of ABC would change if you were reporting to a company which was considering acquiring the whole of ABC's shares (as a business acquisition). Outline additional information you would need in making such an evaluation.
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay