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Appendix B: Financial statements of A & E Enterprise (a) Income Statement for the period ended 31st December 2019- Net Sales: Sales Sales returns...
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question B: Interpretation of business performance (40 marks):

The owners of A & E Enterprise have advertised to sell their business. The financial statements of the business for the last two years are shown in appendix B. A prospective investor has approached their bankers for support to help them make a bid to buy the business. The bankers have asked you as an independent assessor to evaluate the financial performance of A & E Enterprise using accounting ratios, and to advise them. You are required to: 

1. Calculate one profitability ratio, one liquidity ratio, one efficiency ratio and one gearing ratio using information in the financial statements of A & E Enterprise. The calculations should be shown in the appendices of the report. Refer to appendix C for suggested ratios and their formulae. (4 marks)

2. Using the calculated ratios evaluate the financial performance of A & E Enterprise. (20 marks)

3. Explain with reasons whether the bank will likely provide financial support to their client to enable them buy A & E Enterprise. (8 marks)

4. Explain the limitations of the analysis and evaluation of the financial performance of A & E Enterprise undertaken for the period in view. (8 marks)B8C794D8-A493-4D7B-A89E-F81E0386684F.jpegE1543E49-D087-4D17-B5D9-CA667E6392A0.jpeg1C0886C5-1BCF-41B9-A3E1-B9213E839214.jpeg

1C0886C5-1BCF-41B9-A3E1-B9213E839214.jpeg
Appendix B: Financial statements of A & E Enterprise
(a) Income Statement for the period ended 31st December 2019-
Net Sales:
Sales
Sales returns
111,600
(1,500)
LESS: Cost of sales:<
110, 100-
Opening inventory
Purchases
14,208
Carriage inc
71,244
1,860
Purchases returns
(2,6 02)
LESS: Closing inventory
84,710-
Gross Profit
(18,000)
(66.710)
43,390
Add: Other incomes:
LESS: Expenses:
43,390
Carriage out
1,200
Salaries & Wages
Rent & Rates
22,640
1,824
Insurance <
1,000
Motor expenses ~
2,856-
Telephone
2,624-
Electricity
996
General expenses
1,884
Net Profit
(35,024)
8,366
B8C794D8-A493-4D7B-A89E-F81E0386684F.jpeg
Appendix C: Ratio formulas:
Ratio
Formula
Ratio
Formula
1+ Gross
(Gross Profit/Sales
Inventory
Closing Inventory /
profit
Revenue)*100-
Days
Cost of Sales * 365-
margin
24 Net profit
(Net Profit/Sales
Debtor
Trade
margin <
Revenue)*100<
Collection
Receivables/Credit
Days
Sales*365-
34 Return on
Net profit / Capital
Creditor
Trade Payables/Cost
Capital
Employed * 100-
Days
of Sales*3650
Employed-
Current
Current
Gearing
Non-current liabilities/
Ration
Assets/Current
Liabilities
Capital Employed
(Current Assets -
5- Acid Test
Inventory)/Current
10- Interest
Operating Profit /
Ration
Liabilities
Cover
Finance Cost-
Credit sales: Use sales revenue figure for credit sales if no information is provided.
E1543E49-D087-4D17-B5D9-CA667E6392A0.jpeg
(b) Statement of Financial Position as at 31st December 2019
Non-Current Assets:-
Plant & Machinery
5,000
Buildings
Motor Vehicles at cost
50,000
Fixtures & Fittings
10,800
2,100
Current Assets:
67,900
Inventory
18,000
Trade receivables ~
26,010
Cash at Bank
3,092
47, 102-
Less: Current Liabilities
Trade payables ~
(20,386)
Net current assets (working capital)
26,716-
Total Assets - CL
94,616-
Less: Non- Current Liabilities
(0)
Net Assets
94616
Financed by: <
Capital
93,450-
Profit-
8.366
101,816-
LESS: Drawings~
(7,200)
94.616

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