Question: Crazy Joe's plc specialises in supplying pre-paid SIM cards via a range of high street retail outlets. Its success has been attributed to a number of factors, including being able to offer free unlimited international SMS messaging to any country around the world, and blazing-fast 4G LTE data speeds across the UK.
Crazy Joe's has expanded rapidly, opening its own-brand stores which also offer mobile phones and accessories. To do this, the company has invested in property, plant and equipment, which has increased the value of its non-current assets in its Statement of Financial Position.
The CEO, Joe Triviani, is happy that following the release of the 2017 financial statements the company's share price rose to £2.70 per share. It had been constant at £2.50 per share since the publication of the 2015 financial statements.
A group of Crazy Joe's shareholders have expressed concerns, arguing that a number of key accounting ratios indicate that the company's performance has actually declined in 2018, despite the expansion undertaken. They state that the company's performance falls below the standards of publically available industry benchmark ratios.
Industry benchmark ratios for similar size companies operating in this market are:
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Return on Capital Employed
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20.0%
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|
Current ratio
|
1.7:1
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|
Gearing ratio
|
58.0%
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Income Statement for the year ended 31stMarch
|
|
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2018
|
|
|
2017
|
|
|
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£m
|
|
|
£m
|
|
Sales Revenue
|
|
304
|
|
|
258
|
|
Cost of Sales
|
|
144
|
|
|
122
|
|
Gross Profit
|
|
160
|
|
|
156
|
|
Operating Expenses
|
|
106
|
|
|
94
|
|
Profit before interest and tax
|
|
54
|
|
|
42
|
|
Interest
|
|
10
|
|
|
4
|
|
Profit before tax
|
|
44
|
|
|
38
|
|
Taxation
|
|
14
|
|
|
12
|
|
Profit after tax
|
|
30
|
|
|
26
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
25.0p
|
|
|
24.1p
|
|
Dividends per share
|
|
15.83p
|
|
|
16.67p
|
|
|
|
2018
|
|
|
2017
|
|
|
£m
|
£m
|
|
£m
|
£m
|
|
|
|
|
|
|
|
|
Property plant and equipment
|
|
199
|
|
|
131
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Inventories
|
10
|
|
|
8
|
|
|
Trade receivables
|
21
|
|
|
15
|
|
|
Cash at bank and in hand
|
2
|
33
|
|
1
|
24
|
|
Total assets
|
|
232
|
|
|
155
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Ordinary share capital (50p shares)
|
|
60
|
|
|
54
|
|
Share premium account
|
|
8
|
|
|
7
|
|
Retained Earnings
|
|
33
|
|
|
22
|
|
|
|
101
|
|
|
83
|
|
Non-current liabilities
|
|
|
|
|
|
|
Long-term loans
|
|
100
|
|
|
51
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Bank overdraft
|
3
|
|
|
0
|
|
|
Trade payables
|
14
|
|
|
9
|
|
|
Taxation payable
|
14
|
|
|
12
|
|
|
|
|
31
|
|
|
21
|
|
Total equity and liabilities
|
|
232
|
|
|
155
|
Mr Triviani has asked you to explain the results to him before he meets the shareholders.
Required:
(a) Calculate 10 ratios (see below) that can help illustrate the financial performance and financial position of Crazy Joe's plc in the years ended 31stMarch2018 and 31st March 2017. You may also wish to compare to the industry ratios for comparison where relevant. The ratios should cover the following:
- 3 profitability ratios
- 2 liquidity ratios
- 2 gearing ratios
- 3Efficiency ratios
(b) Using the information in the question and the ratios you have calculated, discuss the financial performance of the company for the year ended 31st March 2018. Consider whether the shareholders' concerns are valid.