AUDP Subjects

Salemead plc is a builders’ supplies company located in the North of England and has suffered quite markedly from the effects of the recession. It is now seeking additional long term funds in order to safeguard its financial position and to help it to move into new markets. Its summarised financial statements for the three years to 31 December 2002 are shown below.

Profit and Loss Account for the Year (£000s)
2000 2001 2002
Sales 18,500 15,900 15,100
Cost of sales 10,552 8,537 7,970
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Gross profit 7,948 7,363 7,130
Distribution costs 2,775 2,891 2,768
Administration costs 4,488 4,262 4,205
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Operating profit 685 210 157
Interest 70 65 55
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Net profit before tax 615 145 102
Corporation tax 303 18 –
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Net profit after tax 312 127 102


Balance sheet at 31 December
2000 2001 2002

Fixed assets:

Land and buildings 1,343 1,343 1,126
Equipment and motor vehicles
1,448 1,110 1,135
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2,791 2,453 2,261
Current assets:
Stocks 1,898 1,745 2,287
Debtors 3,169 3,213 3,168
Cash and bank balances 543 258 41
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5,610 5,216 5,496
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Less: Current Liabilities
Creditors 2,873 2,567 2,726
Taxation 200 10 –
Dividends 300 100 100
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3,373 2,677 2,826
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Net current assets 2,237 2,539 2,670
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Total assets less current liabilities 5,028 4,992 4,931
Long term loans 800 800 800
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Net assets 4,228 4,192 4,131
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Share capital (£1 shares) 2,400 2,400 2,400
Reserves 1,828 1,792 1,731
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Required:

(a) Calculate such ratios as may be helpful in judging the performance of the company in terms of profitability, liquidity, efficiency and gearing over the three years to 31 December 2002. Present your interpretation of the company’s results over the three years. (80 marks)

(b) What is the market’s opinion of this company (the company’s shares are currently being quoted at £2 per share)? Explain your reasoning. (20 marks)

(100 marks)







Format: Hard copy only and prepared by using Spreadsheets for Financial statements and word processor for Essay questions.
Due date: Latest by Week 6 - 20th September 2005
Late Submission: Loss of one mark for each day late.