Collingham plc produces electronic measuring instruments for medical research. It has recorded strong and consistent growth during the past 10 years since its present team of managers bought it out from a large multinational corporation. They are now contemplating obtaining a stock market listing. Collingham’s accounting statements for the last financial year are summarised below. Fixed assets, including freehold land and premises, are shown at historic cost net of depreciation. The debenture is redeemable in two years although early redemption without penalty is permissible. Profit and Loss Account for the year ended 31 December 1994 (£m) Turnover 80.0 Cost of sales (70.0) Operating profit 10.0 Interest charges (3.0) Pre-tax profit 7.0 Corporation tax (after capital allowances) (1.0) Profits attributable to ordinary shareholders 6.0 Dividends (0.5) Retained earnings 5.5 Balance Sheet as at 31 December 1994 (£m) Assets employed Fixed: Land and premises 10.0 Machinery 20.0 30.0 Current: Stocks 10.0 Debtors 10.0 Cash 3.0 23.0 Current liabilities: Trade creditors (15.0) Bank overdraft (5.0) (20.0) Net current assets 3.0 Total assets less current liabilities 33.0 14% Debentures (5.0) Net assets 28.0 Financed by: Issued share capital (par value 50p): Voting shares 2.0 Non-voting ‘A’ shares 2.0 Profit and Loss Account 24.0 Shareholders’ funds 28.0 The following information is also available regarding key financial indicators for Collingham’s industry. Return on (long-term) capital employed 22% (pre-tax) Return on equity 14% (post-tax) Operating profit margin 10% Current ratio 1.8:1 Acid test 1.1:1 Gearing (total debt/equity) 18% Interest cover 5.2 Dividend cover 2.6 P:E ratio 13:01 Required (a) Briefly explain why companies like Collingham seek stock market listings. (b) Discuss the performance and financial health of Collingham in relation to that of the industry as a whole. (c) In what ways would you advise Collingham: (i) to restructure its balance sheet prior to flotation? (ii) to change its financial policy following flotation?

Collingham plc produces electronic measuring instruments for medical research. It has recorded strong and consistent growth during the past 10 years since its present team of managers bought it out...

Collingham plc produces electronic measuring instruments for medical research. It has recorded strong and consistent growth during the past 10 years since its present team of managers bought it out from a large multinational corporation. They are now contemplating obtaining a stock market listing. Collingham’s accounting statements for the last financial year are summarised below. Fixed assets, including freehold land and premises, are shown at historic cost net of depreciation. The debenture is redeemable in two years although early redemption without penalty is permissible.

Profit and Loss Account for the year ended 31 December 1994 (£m)
Turnover	80.0
Cost of sales	(70.0)
Operating profit	10.0
Interest charges	(3.0)
Pre-tax profit	7.0
Corporation tax (after capital allowances)	(1.0)
Profits attributable to ordinary shareholders	6.0
Dividends	(0.5)
Retained earnings	5.5

Balance Sheet as at 31 December 1994 (£m)
Assets employed
Fixed: Land and premises	10.0
Machinery	20.0	30.0
Current: Stocks	10.0
Debtors	10.0
Cash	3.0	23.0
Current liabilities: Trade creditors	(15.0)
Bank overdraft	(5.0)	(20.0)
Net current assets		3.0
Total assets less current liabilities		33.0
14% Debentures		(5.0)
Net assets		28.0
Financed by:
Issued share capital (par value 50p):
Voting shares		2.0
Non-voting ‘A’ shares		2.0
Profit and Loss Account		24.0
Shareholders’ funds		28.0

The following information is also available regarding key financial indicators for Collingham’s industry.

Return on (long-term) capital employed	22% (pre-tax)
Return on equity	14% (post-tax)
Operating profit margin	10%
Current ratio	1.8:1
Acid test	1.1:1
Gearing (total debt/equity)	18%
Interest cover	5.2
Dividend cover	2.6
P:E ratio	13:01

Required

(a) Briefly explain why companies like Collingham seek stock market listings.

(b) Discuss the performance and financial health of Collingham in relation to that of the industry as a whole.

(i) to restructure its balance sheet prior to flotation?

(ii) to change its financial policy following flotation?

May 26, 2022

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Collingham plc produces electronic measuring instruments for medical research. It has recorded strong and consistent growth during the past 10 years since its present team of managers bought it out...

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