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					22nd October 1996         Interpretation of Accounts for Tasker Lynch plc.     By Louise Rhodes        Company Acco
untant        1/          Terms of Reference      As the company's accountant I have been asked by the bo
ard of directors to appraise the financial company of my choice. The appraisal was requested by the
 chairman who would like to invest a sum of money on behalf of the employees of Tasker Lynch plc.           T
his report has been prepared to analyse the financial performance of The Booker Group, the company I
 am looking into, with regards to its worthiness for investment by Tasker Lynch plc, and The Nurdin
" Peacock Group, to incorporate the companies profitability, efficiency and liquidity for the histor
ical period 1993-1995 and to provide a comparison between the two. Bookers financial structure will
 then be examined and the advantages and disadvantages of the company, as a recipient of investment
funds will be discussed.      2/           Procedure     To obtain the correct analysis, a detailed bre
akdown of the figures given was necessary, comparing various ratios over the three year period, to s
ee the progress (or otherwise), of the companies involved. To do this, the companies profit and los
s accounts and balance sheets were used.          The financial information relating to the Booker Group has
 been extracted from the audited accounts for the three financial years end 30th December 1995. The
 financial information relating to the Nurdin and Peacock Group has been extracted from: for 1995, t
he audited accounts for the fifty two weeks ended 29th December1995 and for 1994 and 1993 the compar
ative figures shown in the audited accounts for the fifty two weeks ended 29th December and 30th Dec
ember 1994 respectively. (See Appendices1)          3/           Introduction a) Background to Booker Boo
ker is a UK based international food group active in three main business areas: Food Distribution -
cash and carry and delivered wholesale services; international cash and carry operations; food, non-
food items and services to the catering industry and a contract distribution business. Agribusiness
- in the UK division, salmon farming, horticultural plant breeding, sugar-related businesses; and in
 the US, specialist poultry breeding businesses. Fish and Prepared Foods - companies specialising in
 many aspects of the business of fish and seafood and the low cost production of value added fresh a
nd frozen convenience foods. Booker's food distribution businesses include Booker Belmont Wholesale
('BBW'), one of the UK's leading wholesalers and a major national food distribution organisation. B
BW provides cash and carry and delivered wholesale services to retailers and caterers through 158 ca
sh and carry depots and 10 distribution centres across the UK. b)                Background to Nurdin
and Peacock Nurdin " Peacock is a UK listed company and is one of the leading operators of wholesale
 cash and carry warehouses in the UK with 55 depots under the 'Trade and Business Warehouse' Nurdin
and Peacock owns an own-brand portfolio comprising more than 1,300 lines including the Happy Shopper
 and Happy Chef brands, and the Independent Cellars own label drinks range. Nurdin " Peacock support
s 2,200 independent retailers who trade under the Happy Shopper fascia.                    c) Context for
 Booker plc                Internal areas
           · Emphasises customer service. · Emphasises efficiency and investment in major projects
 to improve profitability. · Has moved to centralised distribution.                External areas    ·
 Are facing increasing competition in preferred food markets. · Success is linked to continuing succ
ess of it's independent retailing and catering customers. · Strong success in wholesaling has been o
ffset by BSE (Bovine Spongiform Encephalitis) · Food wholesaling is relatively static but with a ver
y competitive UK market. · In the United States, the broiler industry is currently facing formidable
 problems as a consequence of exceptionally high grain prices. · Well known to the trade as 'Pullman
 Foods'               d) Context for Nurdin and Peacock plc                  Internal factors   · New
management team in force. · Believes in strong investment in new systems. · Has moved to more centra
l distribution and lower costs. · Employees profit sharing scheme. · Policy to reduce costs in the c
ore cash and carry business.                  External areas     · Are facing increasing competition i
n preferred food markets · The tendency for people to eat ready prepared meals and sandwiches, is
 leading to increased trade. · Strong success in wholesaling has been offset by BSE (Bovine Spongifo
rm Encephalitis) · Food wholesaling is relatively static but with a very competitive UK market. · We
ll known brand name, 'Happy Shopper' 4/                 Findings             TABLE 1.      RATIOS USED IN
 THIS REPORT
                    FOR THE BOOKER GROUP.

          1992                1993                           1994
                            £m                                 £m
                    £m CURRENT

                                      CURRENT ASSETS
                    837.8               907
962.7 DIVIDED BY CURRENT LIABILITIES                                                   790.8
             943.6                949.1
                                             TOTAL
                     1.06               0.96
 1.01
            ACID TEST

                                        CURRENT ASSETS
                 837.8                    907                  962.7 MINUS
STOCK                                         383.3                  426.4
                    426.4 TOTAL                                      454.5
                    480.6                     536.3 DIVIDED BY CURRENT LIABILITIES
                                     790.8                 943.6
           949.1
                           TOTAL                                   0
.57                  0.5                    0.57
                                                     STOCK CARRIED


              STOCK PER ANNUM                               383.3
               426.4             426.4 DIVIDED COST OF SALES
                        3,332.20             3,500.10
       3,889.10 COST OF SALES PER WEEK                                        64
0.8                  673.1             747.9 NO. OF WEEKS
                       5.98             6.34
 5.7
            CREDIT GIVEN

                                 DEBTORS
          353.6                386.4                409.3 DIVIDED
BY TURNOVER                                 3,588.70
 3,722.30              4,222.90 WEEKLY TURNOVER
          690.13                715.83                812.1 NO. OF
WEEKS CREDIT GIVEN                                  5.12
   5.4             5.04
                               CREDIT TAKEN

                                                     CREDITO
RS                                  668.5              767.7
              834.5 DIVIDED BY COST OF SALES
     3332.2                3,500.1              3,889.10 WEEKLY COST
OF SALES                                  64.08              67.
31                 74.79 NO. OF WEEKS CREDIT TAKEN
          10.43                11.41              11.16

  RETURN ON CAPITAL EMPLOYED

                                     NET PROFIT
          59.7                       45.8                51.3 DIVIDED BY
CAPITAL EMPLOYED                                         173.9
  181.8                     178.5 TOTAL
  0.34                     0.25                  0.28 TIMES BY 100
                                                                 T
OTAL                                        34.30%                 25.20%
                   28.74%
                                   PERCENTAGE OF GROSS PROFIT


GROSS PROFIT                                      256.5
222.2                      333.8 DIVIDED BY TURNOVER
         3,588.70                     3,722.30                4,222.90 TIME
S BY 100
             TOTAL                                       7.15%
         5.97%                      7.90%
                                             ADMINISTRATION


    ADMINISTRATION COSTS                                 847
       743               988 DIVIDED BY SALES
           3,332.20             3,500.10                3,889.1
0 TIMES BY 100
               TOTAL                               2.54%
           2.12%              2.54%
                                         DIVIDEND COVER


       NET PROFIT AFTER TAX                               59.7
           45.8             51.3 DIVIDED BY DIVIDENDS
                   46.4             49.5              52
.1 TOTAL                              1.29               0.93
                0.98
                         BORROWING:NET WORTH

                                                           TOTAL BOR
ROWING                                  123.1                43.9
              141.7 DIVIDED BY SHAREHOLDERS FUND
        173.9                181.8                178.5 TIMES BY 10
0                                70.79%                24.14%
            79.38%
                          RATIOS USED IN THIS REPORT
                                               FOR THE NURDIN "
PEACOCK GROUP.
                                               1992
       1993                 1994
      £,000                     £,000                   £,00
0 CURRENT

                         CURRENT ASSETS
   155,562                   212,930                    226,730 DIVIDED BY CURREN
T LIABILITIES                                      159,672
  262,997                     244,370
                                           TOTAL
                 0.98               0.81                 0.93

  ACID TEST

                           CURRENT ASSETS
       155,562                   212,930               226,730 MINUS STOCK
                                    132,745               194,613
                  186,956 TOTAL                                  22,817
                   18,317                 39,774 DIVIDED BY CURRENT LIABILITIES
                                    159,672               262,997
                  244,370
                                TOTAL
  0.14                     0.07                 0.16
                                                        STOCK CARRIED


                STOCK PER ANNUM                                       132
,745                 194,613                 186,956 DIVIDED BY COST OF SALES
                               1,355,649                  1,506,69
8                 1,622,216 COST OF SALES PER WEEK
          26,070.17                28,974.96                  31,196.46
  NO. OF WEEKS                                    5.09
6.72                 6
                             CREDIT GIVEN

                                                  DEBTORS
                             12,992              15,171
         17,863 DIVIDED BY TURNOVER                                 1
,403,319                1,540,340              1,659,212 WEEKLY TURNOVER
                                269,87              29,621,92
              31,907.92 NO. OF WEEKS CREDIT GIVEN
         0.48                 0.51              0.56
                                                         CR
EDIT TAKEN

                          CREDITORS
155,562                     212,930          226,730 DIVIDED BY COST OF SA
LES                                1,355,649               1,50
6,698               1,622,216 WEEKLY COST OF SALES
          26,070.17               28,974.96               31,196.
46 NO. OF WEEKS CREDIT TAKEN                                   5.97
        7.35                 7.27
                                      RETURN ON CAPITAL EMPLOYED


              NET PROFIT                              21,877
             11,372            15,699 DIVIDED BY CAPITAL EMPLOYED
                       159,683                148,661
     154,378 TIMES BY 100
                          TOTAL
  13.70%                7.60%                 10%
                                                    PERCENTAGE
OF GROSS PROFIT
                             GROSS PROFIT
     47,670                     33,642                      36,996 DIVIDED BY TURN
OVER                                      1,403,319                      1,5
17,639                    1,646,816 TIMES BY 100
                                             TOTAL
                     3.37%                 2.22%                         2.25
%
             ADMINISTRATION

                                       ADMINISTRATION COSTS
                   18,318                     15,719                     1
5,531 DIVIDED BY SALES                                            1,355,649
         1,506,698                       1,622,216 TIMES BY 100
                                                            TOTAL
                                   1.35%                 1.04%
            0.96%
                        DIVIDEND COVER

                                                  NET PROFIT AFTER TAX
                               21,877                   11,372
             13,848 DIVIDED BY DIVIDENDS
8,205                   8,792                    9,298
                                                            TOTAL
                               2.67                   1.3
      1.49
                    BORROWING:NET WORTH

                                       TOTAL BORROWING
                         8,695            6,706
     6,078 DIVIDED BY SHAREHOLDERS FUND                                              1
59,683                148,661            154,378 TIMES BY 100

    TOTAL                                   5.445                         4.51
%                     3.90% Table 2. Summary of ratios
    1993                   1994                  1995
                                                LIQUIDITY

                                                         CURRENT
                                                            Booker Plc
                          1.06                  0.96
 1.01 Nurdin " Peacock Plc                              0.98
 0.81                   0.93
                          ACID TEST
                               Booker Plc                             0.5
7                   0.5                   0.57 Nurdin " Peacock Plc
                0.14                    0.07                   0.16
                                                                STOCK
 CARRIED           No of Weeks
             Booker Plc                             5.98
 6.34                    5.7 Nurdin " Peacock Plc
5.09                    6.72                  6
                                            CREDIT GIVEN             No of Wee
ks                                                           Booker Plc
                          5.12                  5.4
 5.04 Nurdin " Peacock Plc                              0.48
 0.51                   0.56
                          CREDIT TAKEN             No of Weeks
                                         Booker Plc
       10.43                   11.41                    11.16 Nurdin " Peacock
Plc                            5.97                    7.35
      7.27
         PROFITABILITY

                  R.O.C.E
                      Booker Plc                            34.30%
             25.20%                    28.74% Nurdin " Peacock Plc
              13.70%                    7.60%                   10%
                                                             PERCENTAGE
OF GROSS PROFIT
       Booker Plc                                7.15%                     5
.97%                   7.90% Nurdin " Peacock Plc
3.37%                   2.22%                  2.25%
                                              ADMINISTRATION COSTS
                                                         Booker Pl
c                           2.54%                  2.12%
     2.54% Nurdin " Peacock Plc                          1.35%
      1.04%                   0.96%
                                BORROWING:NET WORTH
                                          Booker Plc
           70.79%                   24.14%                  79.38% Nurdin
" Peacock Plc                          5.44%                  4.51%
              3.96%
                  CAPITAL USED

                              DIVIDEND COVER
                                        Booker Plc
 10.43                        11.41                        11.16 Nurdin " Peacock Plc
                            2.67                       1.3                     1.
49 Note: It is assumed that the 'stock' quoted in the balance sheet represents average stock.              Liqu
idity Ratios      a) Current This is the standard test of liquidity, and it is generally considered tha
t the liquidity ratio should be between 1.5 and 2, below 1.5 a company can find difficulty in meetin
g immediate bills, (wages etc.), over 2 and the company has excess funds. Both companies fall below
1.5, although Bookers is slightly higher. This may well be due to both companies being food distrib
utors, who are able to operate on a lower ratio, as less credit is given and taken in the food indus
try, where most stock has a limited shelf life.       b) Acid Test The acid test ratio is helpful in judg
ing the solvency of the company. The accepted ratios for this test are between 0.9 and 1.0. Nurdin
and Peacock is barely liquid, with a ratio of 0.07-0.16, so that one serious bad debt could put the
 company in trouble. c) Stock Carried           Both companies number of weeks stock, are remaining constant
and are in the region of six weeks, indicating good stock control by both companies            d) Credit given
     Table 1. shows that Bookers, have good control in collecting moneys owing to them. Possibly indic
ating that the company is collecting payments by the end of the month, following the month of delive
ry. Whilst this is slightly in excess of the 'normal' credit payment of thirty days, some companies
must allow generous credit terms to win customers. Nurdin and Peacock, being mainly cash and carry,
operates with very little credit given.        e) Credit taken Bookers appear to be settling their trade
debts each year within the same period, which would indicate that the company is not under any pres
sure from it's debtors. Nurdin and Peacock plc, on the other hand have been extending the number of
 weeks credit given, which confirms the findings of the acid test. (See findings b) )        Profitability
 ratios      a) Return on Capital Employed It is impossible to assess profits or profit growth without
relating them to the amount of capital employed in making the profits. The most important profitabi
lity ratio is therefore the Return on Capital Employed, which states the profit as a percentage of c
apital employed. The directors of Booker, account for the drop from 34.3% in 1993 to 25.2% in 1994,
as being due to increased investment on capital projects (e.g. new distribution depot) and the benef
its of these expenditures are reflected in the increase in the R.O.C.E. in 1995. Return on capital
employed is considerably lower for Nurdin and Peacock at 10% in 1995.                       b) Gross Profit
Bookers gross profit decreased in 1994, for reasons stated previously, (R.O.C.E.) the benefits of wh
ich are reflected once again in the increase in gross profit in 1995. Nurdin and Peacocks gross pro
fit, shows a steady fall over the historical 3 year period, due to the increased pressure of competi
tors. c) Administration Costs The administration costs percentage for Booker is the same in 1995 as
in 1993, but Nurdin and Peacock, shows a slight fall, showing that both companies have a tight contr
ol on their administration costs.       d) Borrowing:Net worth      This ratio can indicate the degree of ris
k to investors in ordinary shares in a company. Generally speaking, the higher the ratio, the great
er the possibility of risk to ordinary shareholders, both in respect of future dividends and from th
reat of liquidation.     In view of the overall analysis of both companies, Bookers' does not have an e
xcessive borrowing ratio and it is manageable at present. The drop in 1994 may well be due to the c
ompany disposing of peripheral businesses, to concentrate on the core. Nurdin and Peacock, although
 operating with an excessively low ratio, have been losing market share and are unable to expand an
d therefore have no need to borrow.                Price to earnings ratio    Generally, the higher the P/E ratio
, the more confidence investors have in the company, but their confidence may not necessarily be jus
tified. The average P/E ratio for British companies is between 7 and 15.          As per The Daily Telegraph
 on 30th October 1996, Bookers' had a P/E ratio of 17.8, with Nurdin and Peacock having a ratio of 1
6.6.      Capital used ratio    Dividend cover       Dividend cover shows what proportion of profit on ordinary
 activities for the year, for distrioctober interpretation accounts tasker lynch louise rhodes compa
ny accountant terms reference company accountant have been asked board directors appraise financial
company choice appraisal requested chairman would like invest money behalf employees tasker lynch th
is report been prepared analyse financial performance booker group looking into with regards worthin
ess investment tasker lynch nurdin peacock group incorporate companies profitability efficiency liqu
idity historical period provide comparison between bookers financial structure will then examined ad
vantages disadvantages recipient investment funds will discussed procedure obtain correct analysis d
etailed breakdown figures given necessary comparing various ratios over three year period progress o
therwise companies involved this companies profit loss accounts balance sheets were used information
 relating booker group been extracted from audited accounts three years december information relatin
g nurdin peacock extracted from audited fifty weeks ended december comparative figures shown audited
 fifty weeks ended december respectively appendices introduction background booker based internation
al food active three main business areas food distribution cash carry delivered wholesale services i
nternational cash carry operations food items services catering industry contract distribution busin
ess agribusiness division salmon farming horticultural plant breeding sugar related businesses speci
alist poultry breeding businesses fish prepared foods specialising many aspects business fish seafoo
d cost production value added fresh frozen convenience foods distribution businesses include belmont
 wholesale leading wholesalers major national organisation provides cash carry delivered wholesale s
ervices retailers caterers through depots centres across background nurdin peacock listed leading op
erators warehouses with depots under trade warehouse owns brand portfolio comprising more than lines
 including happy shopper happy chef brands independent cellars label drinks range supports independe
nt retailers trade under happy shopper fascia context internal areas emphasises customer service emp
hasises efficiency investment major projects improve profitability moved centralised external areas
facing increasing competition preferred markets success linked continuing success independent retail
ing catering customers strong success wholesaling offset bovine spongiform encephalitis wholesaling
relatively static with very competitive market united states broiler industry currently facing formi
dable problems consequence exceptionally high grain prices well known trade pullman foods context in
ternal factors management team force believes strong systems moved more central lower costs employee
s profit sharing scheme policy reduce costs core external facing increasing competition preferred ma
rkets tendency people ready prepared meals sandwiches leading increased strong wholesaling offset bo
vine spongiform encephalitis relatively static very competitive market well known brand name shopper
 findings table ratios used this report current current assets divided current liabilities total aci
d test assets minus stock total divided liabilities total stock carried stock annum divided cost sal
es cost sales week weeks credit given debtors turnover weekly turnover credit given credit taken cre
ditors sales weekly taken return capital employed profit capital employed times percentage gross gro
ss turnover times administration administration costs times dividend cover after dividends borrowing
 worth borrowing shareholders fund ratios used report assets liabilities acid test minus carried ann
um week debtors weekly taken creditors return capital employed percentage gross administration divid
end cover after dividends borrowing worth shareholders fund table summary liquidity acid test carrie
d profitability percentage worth dividend cover note assumed that quoted balance sheet represents av
erage liquidity standard generally considered that ratio should between below find difficulty meetin
g immediate bills wages over excess funds both fall below although bookers slightly higher well both
 being distributors able operate lower ratio less industry where most limited shelf life ratio helpf
ul judging solvency accepted between barely liquid that serious debt could trouble both number remai
ning constant region indicating good control table shows bookers have good control collecting moneys
 owing them possibly indicating collecting payments month following month delivery whilst slightly e
xcess normal payment thirty days some must allow generous terms customers being mainly operates very
 little appear settling their debts each year within same period which would indicate under pressure
 from debtors other hand have extending number which confirms findings findings return impossible as
sess profits growth without relating them amount making profits most important therefore which state
s directors account drop being increased projects depot benefits these expenditures reflected increa
se considerably lower decreased reasons stated previously benefits reflected once again increase pea
cocks shows steady fall over historical year increased pressure competitors same shows slight fall s
howing tight control their indicate degree risk investors ordinary shares generally speaking higher
greater possibility risk ordinary shareholders respect future dividends threat liquidation view over
all analysis does excessive manageable present drop disposing peripheral concentrate core although o
perating excessively losing market share unable expand therefore need borrow price earnings generall
y higher more confidence investors their confidence necessarily justified average british daily tele
graph october having what proportion ordinary activities distriEssay, essays, termpaper, term paper,
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