Prepare monetary statements using accounting standards, Financial Management

Assignment Help:

Entity A is significantly smaller than B in terms of revenue and would not impact LOP's revenue to the same extent. However A earns a noticeably better gross profit margin at 26% as opposite to 17% for B. A's margin is closer to LOP's and would have a less unenthusiastic impact. It maybe suggests that A has targeted a similar market to LOP, whereas B has focussed on income at the expense of margin - high volume / low margin strategy. On the other hand, it could indicate that the two entities categorize costs differently between cost of sales and other functioning costs - especially when we consider the difference in net profit margin.

Entity B earns an improved net profit at 11% and would have less impact on LOP's net margin. A's figure of 9% emerge very low with its GP at 26%. It could be that this is a minor entity and not able to take benefit of economies of scale, has high fixed costs or has poor cost control. A has high gearing and the associated finance costs are also include an impact on net profit.

The gearing of A would have a important consequence on the results of LOP as gearing is at 65% as opposed to B's gearing of 30% and LOP's 38%. However when we consider this mutually with the available lending rates, it perhaps propose that the management of A have shrewdly capitalised on low lending rates and funded the entity through exterior finance. The low gearing of B however, probably gives room to increase borrowing if necessary in the future.

The P/E ratio is a vital ratio for investors and LOP's ratio would be unfavourably affected by either acquisition. A's P/E ratio is significantly lower than B and LOP but it is difficult to make an evaluation of the applicable risk of the entities when they are judged by different markets.

The things are listed on different exchanges and so may prepare their monetary statements using different accounting standards. This will decrease the comparability of financial highlights. The ratios provided tell us nothing about the competence of the entities and the fit of management styles could be an imperative factor in a takeover situation. The entities could apply dissimilar accounting policies that could impact on the ratios, eg equity could be improve by a revaluation of non-current assets which would decrease the gearing ratio and could mask an enhance in borrowings.


Related Discussions:- Prepare monetary statements using accounting standards

Calculate the changes in the margin account, Suppose today's settlement pri...

Suppose today's settlement price on a CME DM futures contract is $0.6080/DM. You comprise a short position in one contract. Your margin account at present has a balance of $1,700.

Describes the gordons dividend model, Q. Describes the Gordons dividend mod...

Q. Describes the Gordons dividend model? Gordon's Model: - Gordon's model is one more theory which contends that dividend policy is relevant for the value of the firm. Alternat

financial crisis, Hedge funds are short two types of funding options. Desc...

Hedge funds are short two types of funding options. Describe in detail what these options are.   Describe why these options become more valuable during a financial crisis.   During

Accounting rate of return (arr), Accounting Rate of Return (ARR): This ...

Accounting Rate of Return (ARR): This technique relies on the rate of return every project will earn over its life. It takes the help of accounting profit while calculating the

Prepare a statement of financial position, Brown has been in business for s...

Brown has been in business for some years and has kept her drawings slightly below the level of profits each year. You are her accountant, and she has passed you the following list

Explain about discount rate, Q. Explain about Discount Rate? Discount R...

Q. Explain about Discount Rate? Discount Rate - Rate at which INTEREST is deducted in advance of the issuance, selling, purchasing or lending of a financial instrument. Also, t

State about the capital structure of financial risk, State about the capita...

State about the capital structure of financial risk Frequently the funds supplied to a firm by lenders will change its financial structure and charge for the funds would be bas

Objectives of working capital management, What are the objectives of workin...

What are the objectives of working capital management? Briefly explain the various elements of operating cycle.

How are the hibor, Q. How are the HIBOR, HSI and HSI futures related? T...

Q. How are the HIBOR, HSI and HSI futures related? The HIBOR and HSI are contrariwise related. So futures on HIBOR and HSI are as well inversely related. Display

Fiancial management, Ashok is to receive an amount of Rs. 15,00,000 from hi...

Ashok is to receive an amount of Rs. 15,00,000 from his relative after 3 years. He wants to buy a house for which he wants the money to be paid now. His relative had already invest

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd