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Task
The following information has been extracted from the accounts of R Ltd., a manufacturer and distributor of home cordless phone in Hong Kong.
000)
Profit and Loss accounts for the year ended 31 December
R Ltd
2010
Sales
4,800
Cost of sales
3,000
Gross Profit
1,800
Less: Expenses
Wages
500
Selling and administration
80
Advertising
220
Other overheads
275
1,075
Profit before interest and tax
725
Less: debenture interest
25
profit before tax
700
Taxation
100
Profit after tax
600
Dividends-preference shares
-12
- ordinary shares
-108
480
Balance Sheet as at 31 December
RLtd
(000)
Fixed Assets
300
450
Current Assets
Stock
1,230
trade debtors
1,000
Bank
250
2,280
1,700
Current Liabilities
trade creditors
350
405
Property tax payable
95
Net current assets
1,830
1,200
Total assets less current liabilities
2,130
1,650
Financed by:
1 ordinary shares
8% preference share
150
reserves
1,430
950
1880
1400
Long term liabilities
10% Debenture
Note:
There was no new issue of shares throughout the year of 2009 and 2010
The market prices per share on 31 December for 2010 and 2009 were $19.6 and $19 respectively.
Required
Analyse the financial statements using relevant techniques, such as ratios, to assess the financial viability of R Ltd
Carry out a performance audit for R on the 2009 and 2010 financial results with respective reference to the internal and external factors, for external factors please specifically consider the impact of the industry and market that R is in.
Use appropriate calculations to improve the quality of the financial information provided and calculated in (a) above.
Based on (a) , (b) and (c) above make recommendation on the strategic portfolio of R. (Please use BCG model for your recommendation. Assuming that the home cordless phone sector in Hong Kong is very keenly competitive and innovative. New product is launched in the market very quickly. R has 15% of the market share and finds it is quite difficult to hold or gain market share.)
Similarities between Preference Share Capital and Debt Similarities between Preference Share Capital and Debt are as follows: a) Both have fixed returns. b) Both do not
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