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HRM 11416 Assignment B: Balance Sheet as at 31 October 2016 (Coursework Sample)

Instructions:

1. Return on capital employed (%) 2. Gross profit (%)3. Operating profit (%)4. Profit for the year (%)5. Current ratio6. Inventory days7. Trade Receivables collection period (days)8. Trade Payables payment period (days)9. Gearing ratio (%)10. Interest cover (times)
(15% Weighting)
(b) Using the ratios calculated in part (a) prepare a report for the investor providing analysis of the performance and position of Andrew and Charlotte. Your answer should suggest reasons for any difference in performance.(30% Weighting)
(c) Discuss what further information might be useful to the potential investor before they decide in which company to invest.(20% Weighting)
(d) It has been rumoured that Charlotte is planning an expansion of their production facilities which will cost £2.5million.  Discuss two techniques the management of Charlotte could use to help decide whether they should go ahead with the project or not. Your answer should evaluate the advantages and limitations of each method.

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Report
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* Calculate the following ten ratios for both companies, clearly showing the ratio formula and figures used: -
The return on capital employed = net operating profit /employed capital (MyAccountingCourse, 2017)
=99/540
ROCE for Andrew =0.183 or 18.3%
The return on capital employed for Charlotte =24/ 969
=0.024 or 2%
Gross profit for Andrew = revenue – cost of sales
=596-394
=202
Gross profit percentage Andrew =gross profit / total revenue x 100
=202/596 x 100
=33.89%
Gross profit for Charlotte = revenue – cost of sales
= 678-526
=152
Gross profit percentage charlotte = gross profit / total revenue x 100
152/678 x100
= 22.41%
Operating profit Andrew – gross profit – administrative expenses and selling and distribution expenses (Investinganswers, 2017)
=202- (36+53)
=113
Operating profit percentage Andrew = operating profit/revenue x 100
=113/596 x 100
=18.9%
Operating profit charlotte- gross profit – administrative expenses and selling and distribution expenses
=152- (45+56)
=43
Operating profit percentage charlotte = operating profit/revenue x 100
=43/678 x 100
=6.34%
Profit of the year Andrew = profit before tax – tax
=113-14
=99
Profit of the year charlotte = profit before tax –tax
=43-19
=24
Current ratio Andrew = current assets/ current liabilities
=(138+69+96)/(60+10)
= 4.32
Current ratio charlotte = current assets/ current liabilities
=(167+98+9)/(120+1+30)
=1.81
Inventory days Andrew = inventory/ cost of sales
= 138/ 394 x365
=127.75
Inventory days Andrew = inventory/ cost of sales
=167/526 x365
=114.49
Trade Receivables collection period (days) Andrew = 356/ accounts receivables (Bragg, 2017)
= 365/ 69
=5.28
Trade Receivables collection period (days) Charlotte = 356/ accounts receivables
=365/98
=3.72
Trade Payables payment period (days) Andrew= 365/ Trade Receivables
= 365/60
=6.08
Trade Payables payment period (days) Charlotte= 365/ Trade Receivables
=365/120
=3.04
Gearing ratio % Andrew =long term liabilities/ capital employed x 100
= 70/ 540x 100
=12.96%
Gearing ratio % Andrew =long term liabilities/ capital employed x 100
=231/1049 x100
=22.12%
Interest cover Andrew =earnings before interact and taxes/ interest expense
= 170
Interest cover Charlotte =earnings before interact and taxes/ interest expense (Kennon, 2017)
=69/ 1
=69
* Using the ratios calculated in part (a) prepare a report for the investor providing analysis of the performance and position of Andrew and Charlotte. Your answer should suggest reasons for any difference in performance.
As an investor, understanding if a company is doing well is a crucial skill. This is relative to the risks involved in making investments in dead-end companies that cost the investors millions. A balance sheet is an easy way of establishing if a company is strong or is weak financially (DiLallo, 2017). As such, the ability to read a balance sheet is one of the subtle ways of establishing if one should invest in a company or keep searching for othe...

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