Task 1

The table below shows the monetary values of assets and liabilities of four companies in millions of British pounds (M). TLC and JLS own wholesale outlets which supply goods to restaurants in several towns and cities in the United Kingdom. JLR and KLM are used car dealers with branches in major cities in the United Kingdom and the majority of their customers buy on credit. JLR and KLM have various types of credit contracts, with payment times that range from 6 - 36 months.

Financial Statements Extracts

	Wholesalers		Car Sales
	TLC	JLS	JLR	KLM
Assets	M	M	M	M
Buildings	0	20	35	37
Cash in Hand & Cash in Bank	135	137	12	10
Inventory	240	255	230	235
Land	0	50	48	53
Trade Receivables	150	165	750	720
Vehicles	35	37	15	12
Liabilities
Bank Loan	3	6	2	2
Debentures	2	5	2	0
Mortgage	5	11	0	2
Tax Liability	50	110	60	47
Trade Payables	205	415	215	175

Table of Formulae

Ratio	Formulae
Current Ratio	Current Assets / Current Liabilities
Liquidity / Acid Test Ratio	(Current Assets Inventory) / Current Liabilities
Gearing Ratio	Longterm Liabilities Issued Share Capital + Reserves + Longterm Liabilities		x 100
Interest Cover	Operating Profit Interest	or	PBIT Finance Costs

Use the information in the financial statements extracts and the table of formulae above for all calculations for this task.

1. Calculate the current ratios for:
   1. TLC
   2. JLS
   3. JLR
   4. KLM
2. Calculate the acid test ratios for:
   1. TLC
   2. JLS
   3. JLR
   4. KLM
3. Which company is most likely to be insolvent?
4. Explain why you think that company is likely to be solvent.
5. Which one of the two types of businesses (ie wholesalers or car dealers) has the higher liquidity ratios?
6. Explain why that type of business has higher liquidity ratios than the other types of business.
7. Do you think decision makers can get useful information from comparing the liquidity ratios of two individual companies in completely different industries? Explain your answer.

   	Wholesalers		Car Sales
   	TLC	JLS	JLR	KLM
   	M	M	M	M
   	000	000	000	000
   Ordinary Share Capital	1250	815	802	805
   Retained Earnings	300	15	100	355
   Finance Costs	10	7	15	17
   Profit Before interest & Tax	180	155	160	175

8. Use the information in the table above to calculate the interest cover for:
   1. TLC
   2. JLS
   3. JLR
   4. KLM
9. Use the same information to calculate the gearing ratios for:
   1. TLC
   2. JLS
   3. JLR
   4. KLM
10. Which company is performing best in terms of:
    1. Interest cover?
    2. Gearing ratio?