a) Computation of Ratios

b) Memorandum on Overall Assessment

To: Managing Director of Oware Ltd
From: Financial Accountant
Re: Evaluation of potential investment in Achiaa Ltd or Apire Ltd
Date: November 2018

Net Profit Ratio
The net profit ratio for both companies is broadly similar, with Apire Ltd slightly outperforming Achiaa Ltd at 19.44% versus 19%. Apire’s sales are lower, but it is managing its costs more efficiently, leading to a better profit margin.

Debt to Equity Ratio
Achiaa Ltd has a significantly higher debt to equity ratio at 172.41% compared to Apire Ltd’s 98.63%. This indicates that Achiaa Ltd is more leveraged and carries a higher financial risk. This may be a concern unless Achiaa is using the debt effectively to drive future growth.

Trade Receivable Days
Apire Ltd manages its receivables more efficiently, with a trade receivable period of 6 days compared to Achiaa Ltd’s 26 days. This shorter period indicates better cash flow management.

Interest Cover
Apire Ltd has a stronger interest cover at 5 times, indicating it can comfortably meet its interest obligations. Achiaa Ltd’s interest cover is lower at 2.2 times, suggesting higher financial strain.

Recommendation
Based on the analysis, Apire Ltd presents a lower risk due to its lower leverage, better cash flow management, and stronger interest cover. However, further due diligence should be conducted, especially on future growth prospects. I recommend considering investment in Apire Ltd, with a focus on confirming its ability to maintain profitability and manage debt.

Yours sincerely,
Financial Accountant
(8 marks evenly spread)