Solved by Expert Tutors
Appendix B: Financial statements of A &amp; E Enterprise (a) Income Statement for the period ended 31st December 2019- Net Sales: Sales Sales returns...
Solved by Expert Tutors
Question

# 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)

Appendix B: Financial statements of A &amp; 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:&lt;
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
LESS: Expenses:
43,390
Carriage out
1,200
Salaries &amp; Wages
Rent &amp; Rates
22,640
1,824
Insurance &lt;
1,000
Motor expenses ~
2,856-
Telephone
2,624-
Electricity
996
General expenses
1,884
Net Profit
(35,024)
8,366
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
margin &lt;
Revenue)*100&lt;
Collection
Receivables/Credit
Days
Sales*365-
34 Return on
Net profit / Capital
Creditor
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.
(b) Statement of Financial Position as at 31st December 2019
Non-Current Assets:-
Plant &amp; Machinery
5,000
Buildings
Motor Vehicles at cost
50,000
Fixtures &amp; Fittings
10,800
2,100
Current Assets:
67,900
Inventory
18,000
26,010
Cash at Bank
3,092
47, 102-
Less: Current Liabilities
(20,386)
Net current assets (working capital)
26,716-
Total Assets - CL
94,616-
Less: Non- Current Liabilities
(0)
Net Assets
94616
Financed by: &lt;
Capital
93,450-
Profit-
8.366
101,816-
LESS: Drawings~
(7,200)
94.616

The student who asked this found it Helpful

m risus ante, dapibus a molestie consequat, ultriacinia pulvi

s a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat,

m risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet a

nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie conseq

tesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congu

ur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lect

ctum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lac

• ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae od
• ec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing eli
• nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac mag
• ipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pe

or nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus,

• lestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulv
• llentesque dapibus efficitur laoreet. Nam risus

congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec faci

• et, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis.
• nec facilisis. Pellentesque dapibus efficitur la
• ipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur lao
• gue vel laoreet ac, dictum vitae odio. Do

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents