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Chelsea plc has embarked on a programme of growth through acquisitions and has identified
Kensington Ltd and Wimbledon Ltd as companies in the same industrial sector, as potential targets.
Using recent financial statements of both Kensington and Wimbledon and fur ther information
obtained from a trade association, Chelsea plc has managed to build up the following comparability
table:
Kensington Wimbledon Industrial AvgProfitability ratios
ROCE before tax % 22 28 20
Retur n on equity % 18 22 15
Net profit margin % 11 5 7
Gross profit ratio % 25 12 20Activity ratios
Total assets tur nover =times 1.5 4.0 2.5
Non-current asset tur nover =times 2.3 12.0 5.1
Receivables collection period in weeks 8.0 5.1 6.5
Inventor yholding period in weeks 21.0 4.0 13.0Liquidity ratios
Current ratio 1.8 1.7 2.8
Acid test 0.5 0.9 1.3
Debt–equity ratio % 80.0 20.0 65.0Required:
(a) Prepare a performance report for the two companies for consideration by the directors of
Chelsea plc indicating which of the two companies you consider to be a better acquisition.
(b) Indicate what further information is needed before a final decision can be made.@apawor said:
please help me with this performance report questionHave you actually attempted the question? This is not a question answering service – you need to have a go at the question and ask for help with specific things you are struggling with. Don’t expect us to just solve the question for you.
prepare a performance report for the two companies for consideration by the directors of Chelsea plc indicating which of the two companies you consider to be a better acquisition
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