4. To what extent could a investor base a decision to purchase 1 million of the Rolls Royce groups shares on the basis of this information? (15)

A investor must take a number of things into consideration before investing their money into a company. The Rolls-Royce income statement shows the difference in Gross and Net profit.
If there is a raise in gross profit but a fall in operating profit this could indicate the managers are not controlling indirect cost effectively however in this particular case its the cost of sales which has had the biggest impact which may mean Rolls-Royce may of had a change of supplier or theirs has raised prices, this may lead to a reduction in profit permanently. The balance sheet can also be of great use to a possible investor, it provides a measure of the value or worth of the business, as we have both 2006 and 2007s balance sheet we can compare to look at Rolls-Royce growth, and as we can see they did grow in that financial year. However we must take the fact that we only have two years of data into consideration, this means the data provided cant produce a clear picture on the business growth, for all the investor knows Rolls-Royce could of been going down considerably with this year just being an abnormality.
A balance sheet also shows the investor the cash position of the firm. which gives insight into the investor on Rolls-Royces ability to pay off its debts and liabilities over the next few months. Rolls-Royce look in a good position to pay off their debts and liabilities.

Although the Rolls Royce information (the income statement and balance sheet) shows a lot of information an investor would find useful on deciding whether or not to invest in Rolls Royce there is also a lot of information that the documents does not show that an investor would like to see before coming to their conclusion. First of all the information does not show the quality of the leader or the firm's management team, external factors or their rivals activities that may have a drastic impact on Rolls Royce eg a rival firm discovering new technology. All of these factors could have a drastic