MediaTech UK plc is a large company in the entertainment sector with retail stores in
four countries selling DVDs, music and games. Income Statements for MediaTech
plc for the years ending December 31 2016 and 2015 are as follows:
2016 £m 2015 £m
Revenue 2,017 1,957
Cost of sales (1,856) (1,804)
Gross profit 161 153
Administrative expense (86) (84)
Operating profit 75 69
Finance cost (6) (8)
Profit before taxation 69 61
Taxation (20) (17)
Retained profit 49 44
The Balance Sheets for Media Tech plc as at December 31 2016 and 2015 are as
follows:
Assets 2016 £m 2015 £m
Non-current assets
Property, plant & equipment 188 162
Intangible assets 122 73
Other assets 56 42
366 277
Current assets
Inventories 248 214
Trade & other receivables 80 72
Cash and short-term deposits 32 54
360 340
Total assets 726 617
Liabilities
Non-current liabilities
Retirement benefit and other liabilities 39 21
Interest bearing loans 12 5
Other liabilities 3 –
54 26
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Current liabilities
Trade & other payables 442 416
Income tax payable 21 17
Interest-bearing loans 84 53
Provisions 4 5
551 491
Total liabilities 605 517
Equity
Share capital 347 347
Reserves 13 12
Retained earnings (239) (259)
Total equity 121 100
726 617
You are also given the following information:
1. The Statement of Changes in Equity discloses that the company paid a
dividend of £29m in financial year 2016 and £27m in financial year 2015.
2. The company had 423.6m shares on issue at the end of the financial years
2016 and 2015.
3. In April 2016 the share price was £0.79. In April 2015, the share price was
£1.50.
Required:
(i) Calculate the following twelve ratios for both years:
a. Return on Capital Employed (ROCE)
b. Return on shareholders’ investment (ROI)
c. Gross margin
d. Operating profit margin
e. Acid-test ratio
f. Asset turnover ratio
g. Inventory days
h. Days payables outstanding
i. Days receivables outstanding
j. Dividend yield
k. Dividend payout ratio
l. Price/Earnings ratio [12 marks]
(ii) Using the ratios calculated in (i) above, and any other information given in the
question, provide an analysis of the financial health of the company from the
perspective of:
a. The management of the company [7 marks]
b. The shareholders [6 marks]
25 marks in total
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Question 4
a) ‘Budgets are said to assist managers in planning, monitoring and controlling
performance.’ Critically evaluate this statement. [13 marks]
b) ‘The recording and preparation of accounting information is underpinned by
certain accounting concepts’. Discuss this statement, using examples to
demonstrate four fundamental concepts. [12 marks]