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Dangal Co

Shown below are the recently issued (summarised) financial statements of Dangal Co, a listed company, for the year ended 30 September 20X7, together with comparatives for 20X6 and extracts from the chief executive's report that accompanied their issue.

    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 @ 25%           (4,000)        (2,000)
Profit for the year            12,000         6,000

Statement of financial position        
    20X7   20X6
Assets   $000    $000 
Non-current assets        
Property, plant and equipment         210,000           90,000
Goodwill           10,000    Nil 
          220,000           90,000
Current assets         
Inventories           25,000           15,000
Trade receivables           13,000             8,000
Cash and cash equivalents    Nil            14,000
            38,000           37,000
Total assets          258,000         127,000
         
Equity and liabilities        
Equity         
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 Dangal Co'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 Dangal Co purchased the whole of the net assets of Ruso Co (previously a privately owned entity) for $100 million, financed by the issue of $100,000 8% loan notes. The contribution of the purchase to Dangal Co'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 Dangal Co for the year ended 30 September.

  20X6
Return on year‐end capital employed (ROCE) - (profit before interest and tax over total assets less current liabilities) 7.10%
Net asset (equal to capital employed) turnover 1.6
Net profit (before tax) margin 4.4%
Current ratio 2.50%
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) 32
Gearing (debt over debt plus equity) Nil

Required
A. Calculate equivalent ratios for Dangal Co for 20X7   
B. Assess the financial performance and position of Dangal Co 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 Ruso.

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