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Question 3 (40 marks)

You have been assigned to prepare a report for the possibility of acquiring the shares of Beer Brewing (Public Company) Limited the shares of which are traded at the stock exchange. You are provided with the following information extracted from the companys published accounts.

The Company revalued its non-industrial freehold and leasehold properties on 20 June 2022. No depreciation is provided on these assets, as it is the companys policy to maintain them, out of expenditure charged to revenue, to a standard ensuring their estimated aggregate residual values exceed net book values.

The present market value of the companys share at the stock exchange is 6.20. The typical P/E ratio of similar companies in the same range of business is 10.

Income Statements Extracts

	2022	2021
	000s	000s
Turnover	21.200	17.200
Operating Profit	2.750	2.085
Less Interest Payable	800	550
Profit Before Tax	1.950	1.535
Less Taxation	590	395
Profit After Tax (Earnings)	1.360	1.140
Less Dividends Paid and Proposed	500	315
Retained Profits	860	825

Summarised Balance Sheets

	2022	2021
	000s	000s
Tangible Assets at Valuation	28.900	16.300
Investments	880	700
	29.780	17.000
Current Assets	3.850	3.150
Less Current Liabilities	4.500	4.000
Net Current Liabilities	-650	-850
Total assets Less Current Liabilities	19.130	16.150
Less Long-Term Liabilities (payable after one year)	7.520	5.100
Net Assets	21.610	11.050
Financed by:
Share Capital Fully Paid Ordinary Shares of 1 each	2.400	1.700
Revaluation Reserve	9.000
Retained Profits Reserve	10.210	9.350
Equity	21.610	11.050

Required:

Calculate the following Financial Ratios for the two years and shortly comment on your findings. Current Ratio (Working Capital Ratio), Interest Cover, Debt to Equity Ratio (Gearing or Leverage Ratio), Asset Turnover Ratio, Net Profit ratio (Operating Profit Ratio), Return On Capital Employed (Long Term Capital, debt Capital, Equity).

Write a short report (no more than 300 words) concerning the following areas: Gearing, Asset Utilisation and Return, Profitability.

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