Q1. What is/are the principal activity/activities of this business?

A1. Synthesis is a lifestyle designer brand. The company caters to both men and women and sells a range of items such as clothing, intimate wear, eyewear, watches, and fragrances. In addition, the company also sells childrenwear. Synthesis PLC sells its items through three main distribution channels that are wholesale, retail, and licensing.

Q2. Comment on the outcome of the auditor’s report for Synthesis Plc. Briefly discuss the importance the auditor’s report with respect to financial information.

A2. EagleEye Audit Plc is the auditor of Synthesis Plc. EagleEye verifies in its auditing report that Synthesis Plc financial statements are accurate to their best estimations and fairly represent the financial picture of the company in accordance with IFRS. EagleEye also observes that the financial statements and the Directors Remuneration Report comply with the Companies Act of 1985. In addition, the auditor agrees with the Directors’ assessment of the company’s financial performance.
The auditor’s report acts as a useful independent check on the accuracy and fair representation of the company’s economic picture by its management. Auditor makes sure that the internal bias doesn’t make its way into the financial statements that may result in a distorted and misleading view of the company. The auditor also ensures that financial statements meet all applicable laws and are consistent with accounting principles and their original intent.

Q3. Compute the following ratios

Profitability

Return on equity (ROE) = 2010 (20.2%), 2009 (27.4%)
Gross profit margin = 2010 (58.5%), 2009 (58.1%)
Net profit margin = 2010 (8.2%), 2009 (10.7%)

Liquidity

Current ratio = 2010 (1.9), 2009 (2.2)

Asset Management

Inventory (stock) turnover period = 2010 (215 days), 2009 (180 days)
Trade payables’ (creditors’) turnover period = 2010 (172 days), 2009 (133 days)

Other

Gearing ratio = 2010 (55%), 2009 (47.4%)
Price earnings ratio = 2010 (11.7 X), 2009 (13.3 X)