Question 1

The scenario

Sheen Holdings Plc wants to diversify its portfolio of investments in subsidiary companies. It already owns a retail company with stocks of groceries and a much smaller range of non-food goods than Extra hypermarkets. They have identified 2 possible acquisition targets and want you to complete the ratio analysis, evaluate the findings, and advise them on which one they should acquire and why.

They have identified 2 young companies that are both 2 years old and growing rapidly. They are very different in what they do: ALD Ltd is based in 2 retail stores, ALD Ltd are looking into the possibility of converting their failing retail store into a provider of hotel and ALD is looking for another property; ZEE Ltd has a large fresh baked item store, with the potential for more space as it is based new build building which still has empty space. ZEE is looking for a contract with a well-known brand in the retail industry so that they stabilise their income and growth.

Both target companies are 2 years old and here are extracts from their financial statements:

Statements (SoPL)

Requirements

1.1  Prepare a business report, to the board of directors of Sheen Holdings Plc using ratio analysis. Your report must evaluate the financial statements and ratio analysis and make a convincing argument for investment in one of the two target companies. Your analysis, conclusions and recommendations should be supported with current situation of retail market and academic references.

1.2  Evaluate the working capital management (WCM) of both companies and draw conclusions on which is stronger.

1.3  What sources of finance should Alphabet Holdings Plc consider to finance the investment in either ALD Ltd or ZEE Ltd? Critically evaluate the options you have identified and make a well-reasoned, and well-referenced, conclusion and recommendation.