At 1 October 20X4, the Tangier group consisted of the parent, Tangier Co, and two wholly-owned subsidiaries which
had been owned for many years.

On 1 January 20X5, Tangier Co purchased a third 100% owned investment in a subsidiary called Raremetal Co. The consideration paid for Raremetal Co was a combination of cash and shares.

The cash payment was partly funded by the issue of 10% loan notes. On 1 January 20X5, Tangier Co also won a tender
for a new contract to supply aircraft engines which Tangier Co manufactures under a recently acquired long-term
licence.

Raremetal Co was purchased with a view to securing the supply of specialised materials used in the manufacture of these engines.

The bidding process had been very competitive and Tangier Co had to increase its manufacturing capacity to fulfil the contract.

Required:

(b)   Calculate appropriate ratios and comment on Tangier Co’s profitability and gearing. Your analysis should
        identify instances where the new contract and the purchase of Raremetal Co have limited the usefulness of
        the ratios and your analysis.

Note: Your ratios should be based on the consolidated financial statements provided and you should not
        attempt to adjust for the effects of the new contract or the consolidation. Working capital and liquidity ratios
        are not required.

(c) Explain what further information you might require to make your analysis more meaningful.

The following mark allocation is provided as guidance for this question:
(a)     5 marks
(b)     12 marks (up to 5 marks for the ratio calculations)
(c)     3 marks