Brenda is considering an investment in the ordinary shares of either Baker plc or Grant plc. Both…

Brenda is considering an investment in the ordinary shares of either Baker plc or Grant plc. Both companies operate in the same sector of industry and both prepare accounts to 30 September each year. Financial statements for the year to 30 September 2020 are shown below. The following information is also available: 1. For both companies, all purchases and sales are made on credit terms. 2. During the year to 30 September 2020, Baker plc paid dividends of £180,000 and Grant plc paid dividends of £600,000. 3. Each company's issued share capital consists of 6 million ordinary shares of £1 each. At the close of business on 30 September 2020, the market price of an ordinary share in Baker plc was £1.65 and the market price of an ordinary share in Grant plc was £2.40. Having examined the financial statements of the two companies, Brenda is inclined to invest in the shares of Baker plc. Her reasons for this view are that Baker plc has higher turnover, higher operating profit and greater assets than Grant plc. The shares of Baker plc are also cheaper. Required: Taking into account these ratios and those which you have calculated for the year to 30 September 2020, advise Brenda which of the two companies seems to be the better investment. Give reasons for your advice. (c) Identify three types of further information which should be obtained before a final investment decision is made.

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