QUESTION 1 (200 marks)
a)Discuss the factors that must be taken into account when providing a context for analysing the financial performance of a business. (15 marks)
b)The following are extracts from the 2019 published financial statements of City-Hotels Group Plc., an international hotel and leisure company.
City-Hotel Group Plc.
Consolidated Income Statement for year ended 31 December 2019
2019
2018
€’000
€’000
Revenue
112,200
93,400
Cost of sales
(51,300)
(44,700)
Gross profit
60,900
48,700
Selling and administrative expenses
(25,400)
(21,500)
Depreciation and amortisation
(6,400)
(5,600)
Operating profit
29,100
21,600
Loan interest
(8,400)
(5,400)
Profit before tax
20,700
16,200
Corporation tax
(2,500)
(1,800)
Profit for the year
18,200
14,400
Dividends paid
(7,600)
(5,400)
City-Hotels Group Plc.
Consolidated Balance Sheet at 31 December 2019
2019
2018
€’000
€’000
ASSETS
Non-current assets
Property, plant & equipment (net book value)
301,300
240,600
Intangible assets
17,500
10,400
318,800
251,000
Current assets
Inventories
2,900
2,400
Accounts receivable
5,600
4,900
Prepayments
4,400
4,100
Cash and Bank
9,800
7,800
22,700
19,200
Total assets
341,500
270,200
EQUITY
Issued share capital (note 1)
7,200
6,500
Share premium
39,100
17,700
Revaluation reserve
84,500
84,500
Other reserves
2,600
2,200
Retained earnings
47,500
36,900
180,900
147,800
LIABILITIES
Non-current liabilities
Loans and borrowings
130,900
96,700
Current liabilities
Trade payables
5,700
4,400
Accrued expenses
9,200
8,900
Bank overdrafts
2,700
2,600
Short term loans and borrowings
10,700
8,700
Corporation tax liabilities
1,400
1,100
29,700
25,700
Total Liabilities
160,600
122,400
Total equity and liabilities
341,500
270,200
Additional Information, note 1:
Nominal (par) value per share in €cent
25
c
25
c
Market price / share, year-end, €cents
930
c
750
c
Required:
(a)Calculate, for each year, 18 ratios under the headings of profitability, Use of assets, capital structure, liquidity and investment (60 marks)
(b)
(c)
(b) Based on (a), comment on the company’s performance and position over the two years
(70 marks)
(c)Apply the Taffler & Tisshaw model of business failure prediction and calculate a z-score for the business for both 2019 and 2018 (20 marks)
(d)Comment on your answers to (c) (10 marks)
(e)Accounting statements are often accused of presenting a limited picture of a business.
In the context of this statement discuss the limitations of ratio analysis. (25 marks)