ACCOUNTING

Accounting



Accounting

Kathryn has been told that Uffington Plc is a fast growing company and she seeks your advice on whether or not to buy shares in the company. She has provided you with the following summarised information taken from the recent annual accounts of Uffington Plc:

2009 2008 £'000 £'000

Income statement for the period:

Revenue*13,20012,000

Gross profit 4,600 3,600

Net profit (after interest and taxation) 440 400

Dividend 200 200

Balance sheet:

Non-current assets 5,620 5,380

Inventories 640 600

Trade receivables 480 400

Cash at bank 160 200

Current Liabilities/Trade payables 1,520 1,400

Non-current liabilities 760 800

Share capital (£1 shares fully paid 4,000 4,000

Retained earnings 620 380_

*Assume that all sales and purchases made on credit

The share price of Uffington Plc is currently 120 pence per share (100 pence in 2008) and it has been around this level for the past few months. The trade association to which Uffington Plc belongs compiles ratios taken from the annual accounts of its members, and from other sources, and you

have obtained the following recent industry averages for some key ratios:

Gross profit margin - 50%

Current ratio - 2.54 times

Acid test ratio - 1.87:1

Average settlement period for trade receivables - 28 days

Average inventories turnover period - 36 days

Gearing ratio - 70%

Price/earnings ratio -10 times

Question 1

Calculate the above ratios for Uffington Plc for 2008 and 2009 periods.

Question 2

Comment on how the company's overall performance compares to the average for its industry, pointing out any significant features, assumptions and limited information used to analyse the company's performance.

Question 3

On the basis of the data available, what advice would you give to Kathryn? Consider the return that Kathryn could expect from owning the shares compared with leaving the money on deposit with the bank. What further information would you advise her to seek before deciding whether or not to buy shares in Uffington Plc?

The key approach in tackling this assignment is ...