Question 2
Nonat Co is a manufacturer of domestic appliances. Its chairman is pleased with the results for the year ended 31 December 2015 as they show a continuing improvement over recent past performance.
However, the finance director says that a better assessment of the company’s performance would be made by a comparison to other companies in the same sector.
The finance director has obtained some ratios for Nonat Co’s business sector, based on a year end of 31 December 2015, which are:
| Return on capital employed (ROCE) | 18·5% |
| Net asset (total assets less current liabilities) turnover | 1·8 times |
| Gross profit margin | 21% |
| Operating profit margin | 10·3% |
| Current ratio | 1·6:1 |
| Gearing (debt/ekvity) | 36% |
The summarised financial statements of Nonat Co are:
Statement of profit or loss for the year ended 31 December 2015
| $’000 | |
|---|---|
| Revenue | 62,500 |
| Cost of sales | (51,800) |
| Gross profit | 10,700 |
| Operating costs | (5,800) |
| Finance costs | (1,800) |
| Profit before tax | 3,100 |
| Income tax expense | (1,000) |
| Profit for the year | 2,100 |
Statement of financial position as at 31 December 2015
| $’000 | $’000 | |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Property | 8,100 | |
| Owned plant | 12,600 | |
| Leased plant | 12,200 | |
| 32,900 | ||
| Current assets | 16,400 | |
| Total assets | 49,300 | |
| Equity and liabilities | ||
| Equity | ||
| Equity shares of $1 each | 9,000 | |
| Property revaluation surplus | 4,000 | |
| Retained earnings | 10,600 | |
| 23,600 | ||
| Non-current liabilities | ||
| 10% loan notes | 10,000 | |
| Finance lease obligations | 6,400 | 16,400 |
| Current liabilities | ||
| Finance lease obligations | 2,100 | |
| Other current liabilities | 7,200 | 9,300 |
| Total equity and liabilities | 49,300 |
Required:
| (a) | Prepare for Nonat Co the equivalent ratios to those of its sector. (6 marks) |
|---|---|
| (b) | Analyse the financial performance and position of Nonat Co for the year to 31 December 2015 in comparison (9 marks) |