Project #92816 - Question 3

 

 

 

3    Hardy is a public listed manufacturing company. Its summarised financial statements for the year ended 30 September
    2010 (and 2009 comparatives) are:

Income statements for the year ended 30 September:

2010                  2009

$’000                  $’000

Revenue                                                 29,500                 36,000

Cost of sales                                             (25,500)                (26,000)

Gross profit                                                4,000                 10,000

Distribution costs                                           (1,050)                  (800)

Administrative expenses                                       (4,900)                 (3,900)

Investment income                                              50                   200

Finance costs                                                (600)                  (500)

Profit (loss) before taxation                                     (2,500)                 5,000

Income tax (expense) relief                                       400                 (1,500)

Profit (loss) for the year                                       (2,100)                 3,500

 

Statements of financial position as at 30 September:

2010                  2009

$’000      $’000       $’000      $’000

Assets

Non-current assets

Property, plant and equipment                                   17,600                 24,500

Investments at fair value through profit or loss                         2,400                  4,000

20,000                 28,500

Current assets

Inventory and work-in-progress                       2,200                  1,900

Trade receivables                                 2,200                  2,800

Tax asset                                         600                    nil

Bank                                          1,200       6,200         100       4,800

Total assets                                               26,200                 33,300

 

Equity and liabilities

Equity

Equity shares of $1 each                                      13,000                 12,000

Share premium                                              1,000                     nil

Revaluation reserve                                              nil                 4,500

Retained earnings                                            3,600                  6,500

17,600                 23,000

Non-current liabilities

Bank loan                                                 4,000                  5,000

Deferred tax                                                1,200                   700

Current liabilities

Trade payables                                   3,400                  2,800

Current tax payable                                   nil      3,400       1,800       4,600

Total equity and liabilities                                      26,200                 33,300

 

 

 

 

 


 

The  following  information  has  been  obtained  from  the  Chairman’s  Statement  and  the  notes  to  the  financial statements:

‘Market conditions during the year ended 30 September 2010 proved very challenging due largely to difficulties in
the global economy as a result of a sharp recession which has led to steep falls in share prices and property values.
Hardy has not been immune from these effects and our properties have suffered impairment losses of $6 million in the
year.’

The excess of these losses over previous surpluses has led to a charge to cost of sales of $1·5 million in addition to the normal depreciation charge.

‘Our portfolio of investments at fair value through profit or loss has been ‘marked to market’ (fair valued) resulting in a loss of $1·6 million (included in administrative expenses).’

There were no additions to or disposals of non-current assets during the year.

‘In response to the downturn the company has unfortunately had to make a number of employees redundant incurring severance costs of  $1·3million  (included in cost of sales) and undertaken cost savings in advertising and other administrative expenses.’

‘The difficulty in the credit markets has meant that the finance cost of our variable rate bank loan has increased from 4·5% to 8%. In order to help cash flows, the company made a rights issue during the year and reduced the dividend per share by 50%.’

‘Despite the above events and associated costs, the Board believes the company’s underlying performance has been quite resilient in these difficult times.’

 

Required:

Analyse and discuss the financial performance and position of Hardy as portrayed by the above financial statements and the additional information provided.

Your analysis should be supported by profitability, liquidity and gearing and other appropriate ratios (up to 10 marks available).

 

 

Subject Business
Due By (Pacific Time) 11/11/2015 12:00 am
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