Business Report

Question 1

 

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The scenario

Mars Holdings Plc has a portfolio of investments in subsidiary companies and is seeking another acquisition that complements the others.

 

The subsidiary companies already in the group include: machinery and commercial vehicle dealership; finance company; equipment leasing company; haulage company with a fleet of 200 heavy goods vehicles (HGV), and a chain of value hotels across the UK, one of which is making a loss.

 

Two possible acquisition targets have been identified:

 

Wyre Child Ltd is based in leased converted hotels and provides care services for young people unable to be cared for in the foster system. Mars Holdings Plc are looking into the possibility of converting their failing hotel into a provider of care services and Wyre Child Ltd is looking for another property to continue expanding around the UK;

 

Border Commercials Ltd has a large unit and caters for the storage and repair of up to 60 commercial vehicles at one time, and has the potential for more space as it is based in a large empty industrial area. Border Commercials is looking for a contract with a fleet operator to stabilise their income and growth.

 

Extracts from the financial statements of both target companies are shown below:

 

Statements of Profit or Loss (SoPL)        
    WYRE CHILD SERVICES Ltd   BORDER COMMERCIALS Ltd
         
      vertical analysis   £ vertical analysis
Turnover   1,542,280 100%   1,258,950 100%
             
Cost of sales   (783,796) 50.82%   (375,852) 29.85%
    __________     __________  
Gross profit   758,484 49.18%   883,098 70.15%
             
Administrative expenses   (367,548) 23.83%   (419,765) 33.34%
Other operating income   9,015 0.58%   0 0.00%
    __________     __________  
Operating profit   399,951 25.93%   463,333 36.80%
             
Other interest receivable and similar income 1,204 0.08%   1,508 0.12%
Interest payable and similar charges   0 0.00%   (38,505) 3.06%
    __________     __________  
Profit on ordinary activities before taxation 401,155 26.01%   426,336 33.86%
             
Tax on profit on ordinary activities   (39,405) 2.55%   (63,223) 5.02%
    __________     __________  
Profit for the year   361,750 23.46%   363,114 28.84%
    __________     __________  

 

 

 

 

 

Statements of Financial Position (SoFP)      
    WYRE CHILD SERVICES Ltd   BORDER COMMERCIALS Ltd
    £ vertical analysis   £ vertical analysis
Fixed assets            
Tangible assets   4,656 1.1%   291,546 30.9%
             
Total Non Current Assets   4,656 1.1%   291,546 30.9%
Current assets            
Trade receivables   78,175 18.5%   285,275 30.3%
Cash at bank and in hand   338,855 80.4%   366,160 38.8%
             
Total Current Assets   417,030 98.9%   651,435 69.1%
             
Total Assets   421,686 100.0%   942,981 100.0%
             
Liabilities            
Current liability: Trade payables   207,224 49.1%   122,944 13.0%
Non current liability: Bank borrowing   0 0.0%   371,335 39.4%
             
Total Liabilities   207,224 49.1%   494,279 52.4%
             
Equity and reserves            
Called up share capital   2 0.0%   2 0.0%
Profit and loss account   214,460 50.9%   448,700 47.6%
             
Total Equity   214,462 50.9%   448,702 47.6%
             
Total Equity and Liabilities   421,686 100.0%   942,981 100.0%

 

 

 

 

 

The ratio analysis below is in 4 categories (Profitability, Management Efficiency, Liquidity and Gearing), and needs completing:

 

Ratios Formulae   WYRE CHILD SERVICES Ltd BORDER COMMERCIALS Ltd
Profitability Ratios        
ROCE PBIT % 95%  
  Cap Employed      
         
Return on Assets PBIT % 95%  
  Total Assets      
         
Asset Turnover Revenue x 3.7  
  Total Assets      
         
Gross Profit Margin Gross profit % 49.2%  
  Revenue      
         
Net Profit Margin PBIT % 26%  
  Revenue      
Efficiency Ratios        
Receivables Collection period (R) Trade receivables x 365 days 19  
  Sales      
         
Payables payment period (P) Trade payables x 365 days 97  
  Cost of sales      
         
Cash Cycle R – P days -78  
         
Liquidity Ratios        
Current Ratio Current Assets x:1 2.0  
  Current liabilities      
Financial Risk or GEARING Ratios        
Gearing Fixed int capital % 0.0%  
  Total capital employed      
         
Interest cover ratio PBIT x 0.0  
  Interest charges      

 

 

 

Requirements

0. Prepare a business report, maximum 2 pages long (approximately 800 words) with an appendix for your ratio analysis.

 

It is to be addressed to the board of directors of Mars Holdings Plc.

 

You must evaluate the financial statements, interpret the ratio analysis and make a convincing argument for investment in one of the two target companies.

 

Your report should be supported with academic references throughout, and your ratio analysis should be put in an appendix to the report.

(800 words, 30 marks)

 

0. Critically evaluate the working capital management (WCM) of both companies using academic references and draw conclusions on which is stronger. (200 words, 5 marks)

 

0. Create a table that lists the advantages and disadvantages of all the finance options available to Mars Holdings Plc. Explain, with references, the source of finance you recommend as most suitable way to finance the investment in either Wyre Chid services Ltd or Border Commercial Ltd.

(200 words, 5 marks)

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