SECTION A – ACCOUNTING
McCrea plc is a UK manufacturer of garden furniture. The company has provided the following financial statements:
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SECTION A – ACCOUNTING
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Statement of Financial Position as at 31 December 2019:
| £’000 | |
| Assets | |
| Non-current assets | |
| Property | 1,050 |
| Plant and equipment | 850 |
| Current assets | |
| Inventory | 640 |
| Trade receivables | 1,230 |
| Cash | 80 |
| Current liabilities | |
| Trade payables | 850 |
| Taxation | 40 |
| Bank overdraft | 125 |
| Interest payable | 30 |
| Non-current liabilities and equity | |
| Long term loans | 700 |
| £1 ordinary shares | 750 |
| Reserves | 1,355 |
Income Statement for the year ended 31 December 2019:
| £’000 | |
| Sales revenue | 12,100 |
| Cost of goods sold | (9,590) |
| Gross profit | 2,510 |
| Operating expenses | (1,935) |
| Operating profit | 575 |
| Interest expense | (50) |
| Net profit before tax | 525 |
| Taxation | (115) |
| Net profit for the year | 410 |
Required:
(a) Calculate the following ratios for McCrea plc in 2019.
- Return on Capital Employed (ROCE)
- Operating profit margin
- Inventories’ turnover period
- Settlement period for trade receivables
- Current ratio
- Acid test ratio
- Gearing ratio
- Interest cover ratio
- Earnings Per Share (EPS)
All calculations (including the ratio formulas) must be clearly shown.
(9 marks)
(b) The ratios set out in the table below are those calculated for McCrea plc based on its published financial statements for the previous year (2018)
| Return on Capital Employed (ROCE) | 15.01% |
| Operating profit margin | 4.9% |
| Inventories turnover period | 19 days |
| Settlement period for trade receivables | 41 days |
| Current ratio | 1.63 |
| Acid test ratio | 1.35 |
| Gearing ratio | 37.44% |
| Interest cover ratio | 8.7 times |
| Earnings Per Share (EPS) | 22.8p |
Using the ratios you calculated (in part a) for McCrea plc in 2019 and the above ratios for 2018, comment on the company’s performance and financial position for the two years.
(24 marks)
(Total: 33 marks)
(maximum 200 words in total. Tables, calculations, annotations for worked answers do not count in the word limit)
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