Task
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The following information has been extracted from the accounts of R Ltd., a manufacturer and distributor of home cordless phone in Hong Kong.
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000)
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Profit and Loss accounts for the year ended 31 December
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R Ltd
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2010
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Sales
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4,800
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Cost of sales
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3,000
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Gross Profit
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1,800
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Less: Expenses
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Wages
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500
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Selling and administration
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80
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Advertising
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220
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Other overheads
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275
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1,075
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Profit before interest and tax
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725
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Less: debenture interest
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25
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profit before tax
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700
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Taxation
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100
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Profit after tax
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600
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Dividends-preference shares
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-12
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- ordinary shares
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-108
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480
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Balance Sheet as at 31 December
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RLtd
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R Ltd
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(000)
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Fixed Assets
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300
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450
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Current Assets
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Stock
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1,230
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450
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trade debtors
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600
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1,000
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Bank
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450
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250
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2,280
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1,700
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Current Liabilities
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trade creditors
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350
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405
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Property tax payable
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100
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95
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450
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500
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Net current assets
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1,830
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1,200
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Total assets less current liabilities
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2,130
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1,650
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Financed by:
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1 ordinary shares
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300
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300
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8% preference share
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150
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150
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reserves
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1,430
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950
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1880
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1400
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Long term liabilities
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10% Debenture
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250
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250
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2,130
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1,650
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Note:
There was no new issue of shares throughout the year of 2009 and 2010
The market prices per share on 31 December for 2010 and 2009 were $19.6 and $19 respectively.
Required
Analyse the financial statements using relevant techniques, such as ratios, to assess the financial viability of R Ltd
Carry out a performance audit for R on the 2009 and 2010 financial results with respective reference to the internal and external factors, for external factors please specifically consider the impact of the industry and market that R is in.
Use appropriate calculations to improve the quality of the financial information provided and calculated in (a) above.
Based on (a) , (b) and (c) above make recommendation on the strategic portfolio of R. (Please use BCG model for your recommendation. Assuming that the home cordless phone sector in Hong Kong is very keenly competitive and innovative. New product is launched in the market very quickly. R has 15% of the market share and finds it is quite difficult to hold or gain market share.)