Case study assignment question 1
Case Study – Brief
Barnet Solutions PLC is a medium-sized, well-established, listed UK company with sites throughout the country, engaged in the sourcing and distribution of a range of hair care products.
The company’s financial year end is 31st August and extracts from the published accounts of the company, in £millions, are shown below:
|
Statement of Comprehensive Income |
2011/12 | 2010/11 | ||
|
590.0 | 550.0 | |||
|
Cost of Sales | (422.5) | (380.5) | ||
|
Gross Profit | 167.5 | 169.5 | ||
Operating Expenses | (98.0) | (102.0) | ||
|
Profit before Interest and Tax | 69.5 | 67.5 | ||
Interest Payable | (10.5) | (6.0) | ||
|
Profit before Tax | 59.0 |
61.5 | ||
|
Corporation Tax (28%) |
(16.5) |
(17.2) | ||
|
Profit after Taxation |
42.5 |
44.3 | ||
|
Dividends |
(23.0) |
(23.0) | ||
|
Retained Profit for Year |
19.5 |
21.3 | ||
|
Statement of Financial Position | ||||
|
Non-current assets | ||||
|
Land & buildings |
123.0 |
75.0 | ||
|
Plant & machinery |
113.5 |
80.6 | ||
|
Trademarks & patents |
17.7 |
20.3 | ||
|
254.2 |
175.9 | |||
|
Current assets | ||||
|
Inventory |
103.5 |
79.0 | ||
|
Trade Receivables |
101.5 |
115.0 | ||
|
Short term investments |
8.5 |
7.5 | ||
|
Cash at bank |
5.0 |
2.5 | ||
|
Total Current Assets |
218.5 |
204.0 | ||
|
Current liabilities | ||||
|
Trade Payables |
87.0 |
74.5 | ||
|
Bank Overdraft |
13.5 |
8.0 | ||
|
Hire Purchase liabilities |
10.0 |
5.5 | ||
|
Corporation Tax |
16.5 |
17.2 | ||
|
Total Current Liabilities |
127.0 |
105.2 | ||
|
Net Current Assets |
91.5 |
98.8 | ||
|
Total Assets Less Current Liabilities |
345.7 |
274.7 | ||
|
Non-Current Liabilities | ||||
|
Loans |
104.5 |
57.5 | ||
|
Hire Purchase liabilities |
24.0 |
128.50 |
19.50 |
77.0 |
|
Net Assets |
217.2 |
197.7 | ||
|
Capital and Reserves | ||||
|
Ordinary Share Capital |
80.0 |
80.0 | ||
|
Share Premium |
46.0 |
46.0 | ||
|
Capital Revaluation Reserve |
25.0 |
25.0 | ||
|
Retained Earnings |
66.2 |
46.7 | ||
|
Total Equity/Shareholders' Funds |
217.2 |
197.7 |
The nominal value of the ordinary shares is £0.25 each and the market value of the shares at 31st August 2012 was £2.45, an increase of £0.30 compared to that at the previous year end.
In the hair care products sector, typical gross margins are around 33%, net margins 13% and return on total capital employed 25%. Barnet Solutions’ main UK competitor currently has a P/E ratio of 16 and a dividend yield of 4.5%.
Average working capital ratios in the industry are:
Stock holding 75 days Debtors outstanding 65 days
Creditors outstanding 65 days
It is now November 2012 and the company wishes to expand its activities into the European market and needs to raise £40 million additional funds to finance this planned growth. The current market share price is £2.35 per share.
The company’s plans for 2012/13 indicate a profit before interest and tax of £75 million and a further increase to £81 million in 2013/14 when the benefits of the proposed investment are expected to be fully realised. Dividends are expected to be maintained going forward at the same rate per share as for 2011/12 and the rate of Corporation Tax is assumed to remain unchanged at 28%.
Case Study Requirement
- Calculate the key financial ratios of Barnet Solutions PLC for both 2011/12 and 2010/11.
bsp; 2011/2012 2010/2011
Profitability
Efficiency
Capital Gearing
Liquidity
Investor Value
- Critically appraise the key financial calculated ratios for both years the performance of the company and recommend ways in which financial performance could be improved
- Prepare a report for Barnet Solutions PLC that recommend methods of providing the additional funds required for expansion into the European market and recommending preferred method
- Prepare budgets for the years 2012/13 and 2013/14, based upon information supplied and through recommendations, through methods, with supporting calculations
- Propose a use of £40m, capital investment, through capital decision making techniques, evaluate and comment upon the proposed use of the capital investment for :-
- Managers & Directors
- Shareholders
Cite appropriate literature to support the analysis and recommendations.
