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Discuss the factors that must be taken into account when providing a context for analysing the financial performance of a business. (15 marks) (1 page)

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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) (1 page)

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).

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