Accounting and Finance will send you fquestions file - Essay Example

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The performance report of Kensington Ltd and Wimbledon Ltd will entail a comparison of the analysis of the two companies’ financial report and the industrial averages. Different aspects of the financial ratios such as the profitability, liquidity and activity will be analysed…
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PERFORMANCE REPORT al Affiliation) Introduction The performance report of Kensington Ltd and Wimbledon Ltd will entail a comparison of the analysis of the two companies’ financial report and the industrial averages. Different aspects of the financial ratios such as the profitability, liquidity and activity will be analysed appropriately. This report should leave Chelsea Plc. management at a better position to make a decision on their new growth programme.
Profitability ratios
Both the return on capital employed and the return on equity of Kensington and Wimbledon companies are above the industrial averages. This implies that both the companies are efficient in utilizing their capital and equity to generate sufficient profits despite the fact that Wimbledon has a higher ratio than Kensington. The Net Profit Margin and Gross Profit ratio of Kensington are higher than that of Wimbledon. To make it worse, the ratios of Wimbledon are below the industry averages (Bull, 2008).
Activity Ratios
The total assets turnover and non-current assets of Wimbledon is higher than that of Kensington. The ratio of Kensington was lower than the industrial averages. This implies that Wimbledon is efficient in utilizing its total assets and non-current assets to generate sufficient revenue. Apart from receivables collection period of Wimbledon being below the industrial averages, it is also below that of Kensington (Tennent, 2008). This shows that Wimbledon is very efficient in collecting its debts. The Inventory holding period follows the same trend as the receivables collection period. This reveals that Wimbledon is efficient in converting its inventory since it holds them for a short period (Berman, Knight and Case, 2013).
Liquidity ratios
The current ratio and decisive test ratio of both the two companies are below the industrial averages. This is despite the fact the current ratio of the two companies are above the one implying that both the two companies can at least service their current obligations with their current assets. The debt-equity of Wimbledon is below both that of Kensington and the industrial average implying that it is not heavily geared (Barrow and Barrow, 2008).
Considering the above analysis, it is highly advisable that Chelsea Plc. should acquire Wimbledon than Kensington company since it has financial ratios indicate better financial performance. The directors of Chelsea Plc. should consider other information such as cash flow statements and company policy before of the two companies before making their final decision.
Barrow, C. and Barrow, C. 2008. Practical financial management. London: Kogan Page.
Berman, K., Knight, J. and Case, J. 2013. Financial intelligence. Boston, Mass.: Harvard Business Review Press.
Bull, R. 2008. Financial ratios. Oxford: CIMA.
Tennent, J. 2008. Guide to financial management. London: Profile Books. Read More
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