Recycle Ltd

Recycle Ltd recycles toxic chemical waste products. The waste products are sent to Recycle Ltd from
all around the world. You are the accountant (not employed by Recycle Ltd) who is accustomed to
providing advice concerning the performance of companies, based on the data available from their
published financial statements. Extracts from the financial statements of Recycle Ltd are given below

RECYCLE LTD
INCOME STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER

2022 2021
£m £m
Revenue 3,000 2,800
Cost of sales (1,600) (1,300)
Gross profit 1,400 1,500
Other operating expenses (800) (600)
Operating profit 600 900
Finance costs (200) (100)
Profit before
taxation 400 800
Taxation (150) (250)
Profit after taxation 250 550

STATEMENTS OF FINANCIAL POSITION AS AT

2022 2021
£m £m

Non-current assets 3,900 3,600

Current assets
Inventories 500 350
Trade receivables 1,000 800
Cash and cash equivalents 50 50
1,550 1,200

Total assets 5,450 4,800

Equity
Share capital (£1 shares) 2,000 2,000
Retained profits 950 900
2,950 2,900

Non-current
liabilities 1,000 1,000

Current liabilities
Trade payables 600 600
Taxation payable 150 250
Bank overdraft 750 50
1,500 900

Total liabilities 2,500 1,900

Total equity and liabilities 5,450 4,800

Proposed dividend is £200m (2021:

200m)
You ascertain that depreciation of non-current assets for the year ended 30 September 2022 was
£900m. There were no disposals of non-current assets during the year

You are approached by an individual:

 X is a private investor who is considering purchasing shares in Recycle Ltd. X considers that
Recycle Ltd has performed well in 2022 compared with 2021 because revenue has risen and
the dividend to shareholders has been maintained

Required:
Write a report to X which analyses the financial performance of Recycle Ltd over the two years ended
30 September 2022. Your report should refer specifically to the observations made by X concerning
the performance of Recycle Ltd.

Include, as an appendix to your report, the following ratios:

 Gross profit margin
 Net profit margin
 Current ratio
 Quick ratio
 Receivables days
 Payable days
 Inventory days
 Gearing ratio
 Interest cover
 Dividend cover

Assume that inflation is negligible