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Shown below are the recently issued summarised financial statements of Harbin, a listed entity, for the year ended 30 September 20X7, together with comparatives for 20X6 and extracts from the Chief Executive’s report that accompanied their issue.

Consolidated statements of profit or loss

 

 

20X7

20X6

 

 

$000

$000

            Revenue

 

250,000

180,000

           Cost of sales

 

(200,000)

(150,000)

 

 

–––––––

–––––––

            Gross profit

 

50,000

30,000

            Operating expenses

 

(26,000)

(22,000)

            Finance costs

 

(8,000)

(Nil)

 

 

     –––––––

     –––––––

            Profit before tax

 

16,000

8,000

           Income tax expense (at 25%)

 

(4,000)

(2,000)

 

 

–––––––

–––––––

            Profit for the period

 

12,000

6,000

 

 

–––––––

–––––––

 

Consolidated statement of financial position

 

 

20X7

20X6

 

 

$000

$000

           Non-current assets 

 

 

 

                        Property, plant and equipment

 

210,000

90,000

                        Goodwill

 

10,000

Nil

 

 

–––––––

–––––––

 

 

220,000

90,000

 

 

–––––––

–––––––

           Current assets

 

 

 

                        Inventory

 

25,000

15,000

                       Trade receivables

 

13,000

8,000

                        Bank

 

nil

14,000

 

 

–––––––

–––––––

 

 

38,000

37,000

 

 

–––––––

–––––––

            Total assets

 

258,000

127,000

 

 

–––––––

–––––––

            Equity and liabilities

 

 

 

                       Equity shares of $1 each

 

100,000

100,000

                        Retained earnings

 

14,000

12,000

 

 

–––––––

–––––––

 

 

114,000

112,000

            Non-current liabilities

 

 

 

                        8% loan notes

 

100,000

Nil

 

 

–––––––

–––––––

            Current liabilities

 

 

 

                        Bank overdraft

 

17,000

Nil

                        Trade payables

 

23,000

13,000

                        Current tax payable

 

4,000

2,000

 

 

–––––––

–––––––

 

 

44,000

15,000

 

 

–––––––

–––––––

            Total equity and liabilities

 

258,000

127,000

 

 

      –––––––

     –––––––

 

Extracts from the Chief Executive’s report:

‘Highlights of Harbin’s performance for the year ended 30 September 20X7:

  • an increase in sales revenue of 39% •             
  • gross profit margin up from 16.7% to 20%
  • a doubling of the profit for the period.

In response to the improved position the Board paid a dividend of 10 cents per share in September 20X7 an increase of 25% on the previous year.’

You have also been provided with the following further information.

On 1 October 20X6 Harbin purchased the whole of the net assets of Fatima (previously a privately owned entity) for $100 million. The contribution of the purchase to Harbin’s results for the year ended 30 September 20X7 was:

 

 

$000

            Revenue

70,000

            Cost of sales

(40,000)

 

––––––

            Gross profit

30,000

            Operating expenses

(8,000)

 

––––––

            Profit before tax

22,000

 

    ––––––

 

There were no disposals of non-current assets during the year.

The following ratios have been calculated for the year ended 30 September 20X6 and 20X7:

                 

     20X7

     20X6

   Return on year-end capital employed
 (PBIT over total assets less current liabilities)                

 

7.1%

           Net asset (equal to capital employed) turnover

1.2

1.6

            Net profit (before tax) margin

6.4%

4.4%

            Current ratio

 

2.5

            Closing inventory holding period (in days)

 

37

           Trade receivables’ collection period (in days)

 

16

           Trade payables’ payment period (based on cost of sales) (in days)

42

32

            Gearing (debt over debt plus equity)

 

Nil

Requirements:

(a) Calculate the missing ratios for 20X7.      (5 marks) 
(b) Assess the financial performance and position of Harbin for the year ended 30 September 20X7 compared to the previous year. Your answer should refer to the information in the Chief Executive’s report and the impact of the purchase of the net assets of Fatima.   (15 marks) 
 

Marks: 20

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