The Composition of the Companys Equity - Research Paper Example

Metropole Plc Income ment/ ment of comprehensive income for the period ending 31 December 20xx £000s £000s £000s 2009 2008 Revenue (Notes 1) 1,265.34 1,433.80 1,246.80 Cost of sales 753.46 889.60 715.30 Gross profit 511.88 544.20 531.50 Operating expenses 258.94 305.80 295.

00 Operating profit 252.94 238.40 236.50 Finance costs 25.89 27.80 33.50 227.04 210.60 203.00 Income tax 34.06 34.30 38.00 Profit for the year 192.99 176.30 165.

00 Other comprehensive income Revaluation - 192.80 - Total comprehensive income for the year 192.99 369.10 165.00 Metropole Plc Statement of Financial Position As of the year ending Dec 31, 20xx £000s £000s £000s 2010 2009 2008 Non current Assets Intangible 43.00 48.00 53.

00 Tangible (Note 2) 1,561.06 1,688.30 1,579.40 1,604.06 1,736.30 1,632.40 Current Assets Inventories 207.68 188.80 175.00 Trade Receivables 304.74 169.30 128.50 Short term deposits 238.44 198.70 22.

20 Cash 204.27 0.50 9.30 955.13 557.30 335.00 Total Assets 2,559.19 2,293.60 1,967.40 Equity Ordinary share capital 498.70 498.70 427.50 Share premium account 273.20 273.20 225.

70 Revaluation reserve 306.70 306.70 113.90 Retained profits 816.79 623.80 535.00 1,895.39 1,702.40 1,302.10 Liabilities Non current liabilities 149.04 186.30 368.60 Current liabilities (Note 3) 514.77 404.

90 296.70 663.81 591.20 665.30 Total Equity and Liabilities 2,559.19 2,293.60 1,967.40 Metropole Plc Statement of Cash Flow 31 December 20xx £000s £000s £000s 2010 2009 2008 Profit before tax 227.04 210.60 203.00 Interest 25.89 27.80 33.

50 Depreciation 127.24 159.20 123.00 Goodwill impairment 5.00 5.00 5.00 Profit/Loss of disposal of non current asset - (20.80) 12.00 385.18 381.80 376.50 Decrease/ increase in trade receivables (135.44) (40.80) 30.

50 Decrease/ Increase in inventories (18.88) (13.80) 35.00 Increase/ decrease in trade payables 76.57 76.30 (21.00) Increase/ decrease in accruals 14.89 14.60 (11.00) Cash generated from operations 322.32 418.10 410.00 Finance costs paid (26.15) (24.90) (22.00) Income tax paid (38.06) (35.70) (32.00) Net cash flow from operating activities 258.

10 357.50 356.00 Cash flow from investing activities Purchase of property plant and equipment - (200.30) (360.00) Sale of property plant and equipment - 145.80 30.00 - (54.50) (330.00) 258.10 303.

00 26.00 Cash flow from financing activities Dividends paid - (87.50) (60.00) Proceeds from share issues - 118.70 - Debt reductions/ increase (37.26) (182.30) 20.00 (37.26) (151.10) (40.00) 220.

84 151.90 (14.00) Net increase in cash and cash equiv 220.84 151.90 (14.00) Cash and cash equiv at start of year (Note 4) 177.10 25.20 39.20 Cash and cash equiv at end of year (Note 4) 397.94 177.10 25.20 Metropole Plc Statement of Changes in Equity At 31 December 2010 Share Share Reval Income Capital Premium Reserve Stat Total £000s £000s £000s £000s £000s Balance at 31 December 2009 498.

70 273.20 306.70 623.80 1,702.40 Share Issue - Revaluation - Profit for year 192.99 192.99 Dividends         - Balance at 31 December 2010 498.70 273.20 306.70 816.79 1,895.39 Notes on the financial statements: 1. The following sales are projected for the year ending Dec 31, 2010. Gross sales Cost of Sales Gross Revenue Less Operating Exp £000s £000s £000s £000s Home Decorating 458.

80 321.16 137.64 96.35 Household Goods 548.42 329.05 219.37 131.62 DIY stores 258.12 103.25 154.87 30.97 Total 1,265.34 753.46 511.88 258.94 2. Analysis of movement of non-current assets 2010 Land and Plant Eqpt Total Property Cost Operating balance 1,342.

80 300.20 450.00 2,093.00 additions 141.60 58.70 200.30 disposals (66.70) (200.00) (266.70) revaluation -     - 1,342.80 375.10 308.70 2,026.60 Depreciation Opening balance 115.50 101.00 121.80 338.30 disposals Charge for the year 16.35 54.82 56.07 127.24 131.85 155.82 177.

87 465.54 Net book value 1,210.95 219.28 130.83 1,561.06 3. Analysis of current liabilities 2010 2009 2008 trade payables 323.57 247.00 170.70 accrued charges 95.51 87.60 73.00 finance costs 12.85 11.60 8.70 income tax 38.06 36.60 38.00 bank overdraft 44.77 22.10 6.30 514.77 404.90 296.70 4. Cash and cash equivalents analysis 2010 2009 2008 Cash in bank 204.

27 0.50 9.30 Bank overdraft (44.77) (22.10) (6.30) bank deposit 238.44 198.70 22.10 397.94 177.10 25.10 Operating Assumptions Gross sales Since there is a reported economic downturn for the year being projected, and economic prospects remain bleak for the rest of the year, it is anticipated that sales will be affected with the slowdown in the global economic activity. Presumably, consumers will be holding a bit on their purchases, especially luxury items, such as those being produced and sold by Metropole Plc.

In this regard, the following assumptions have been made: Home decorating division – 20% decrease in sales compared to the year it preceded Household goods division – 15% decrease in sales since some items can be considered as necessary household appliances DIY store division – 20% increase in sales, since this division has exhibited strong sales performance with a significant growth in the last four years. Moreover, the division has attracted a type of consumers that seem to be a niche market, thus creating stable demand for the products Cost of sales Cost of sales has been assumed to follow a pattern from its previous performance.

For the home decorating division, cost of sales was pegged at 70 percent, for the household goods at 60 percent, and for the DIY goods at 40 percent. Operating expenses Cost of operations for 2010 also followed the historical pattern based on 2009 and 2008 statements, and assumed the same percentage against gross sales of previous years. Given these assumptions, the gross operating income and the income before tax was derived and computed for the year 2010. Comprehensive income for the year 2010 Since it was assumed that there was no revaluation occurring in 2010, the net income after tax for Metropole was projected to be at £193,000.

This income, compared to that of 2009 and 2008, is quite better than expected, given the bleak global economic outlook. Current assets Since there is an expected economic slowdown, the forecast decreased in sales will leave a bigger inventory of merchandise. Thus compared to 2009, the inventory for 2010 will be higher by about 10 percent. Trade receivables, on the other hand, will suffer a bit since receivables may not be collected on time. As a matter of fact, to push sales and in an effort to curtail inventory from piling up, sales on account are projected to rise giving more trade receivables to account for 2010.

Thus, trade receivables account for 2010 ended with 80 percent higher than the previous year 2009. What will save the day for Metropole during the economic downturn in 2010 will be the highly profitable and stable DIY stores. This division is expected to deliver the cash for the company. Thus, it is also forecast that an increase in cash account is expected, and some of them will be treated as short term savings deposit. Retained earnings Given the volatile nature of the economy, investments are forecast to be put on hold, as the company observes the direction that the economy will take in the next few months.

Thus, retained earnings for 2010 will be plowed back entirely to its operations. It is going to withhold any dividend declaration during the volatile economic condition, as it would be very frugal in dispensing any excess liquidity. Acquisitions, purchases, and other major investments will be put on hold to avoid any unnecessary risk on the company’s cash requirements. Equity No major change is expected in the composition of the company’s equity. For the year 2010, a profitable operations will lead to a hefty income being retained in the company’s balance sheet.

No major source of income from other investments is being expected to provide a windfall. Cash at the end of the year 2010 The company will be in a liquid position given a good amount of cash and other cash equivalents from operations by the end of the year.