Question: Ilk Ltd
John Brown has recently bought shares in Ilk Ltd, a company that manufactures furniture.
You are given below the financial statements for Ilk Ltdfor the year ended 31st December 2017 (with comparative figures for the year ended 31st December 2016).
The company has expanded in the year ended 31st December 2017, investing in an additional workshop, and other assets to improve productive capacity.
The workshop extension was in full production by the end of March 2017.
Following the release of the 2017 financial statements the company's share price rose to £2.65 per share. It had been constant at £2.30 per share since the publication of the 2016 financial statements.
Nevertheless, a small group of shareholders have voiced some concerns, arguing that many key accounting ratios indicate that the company's profitability has actually declined in 2017, despite the expansion undertaken and that the company is exposed to a higher level of risk.
John himself has observed that the company now seems to have no money left at all and is extremely worriedabout the financial health of the business.
Ilk Ltd
Statement of Comprehensive Income for the year ended 31st December
|
|
2017
|
|
2016
|
|
|
£'000
|
|
£'000
|
|
Sales Revenue
|
1,520
|
|
1,290
|
|
Cost of Sales
|
719
|
|
614
|
|
Gross Profit
|
801
|
|
676
|
|
Operating Expenses
|
529
|
|
467
|
|
Profit before interest and tax
|
272
|
|
209
|
|
Interest payable
|
52
|
|
24
|
|
Profit before tax
|
220
|
|
185
|
|
Taxation
|
66
|
|
55
|
|
Profit after tax
|
154
|
|
130
|
Ilk Ltd
|
|
2017
|
|
2016
|
|
|
£'000
|
£'000
|
|
£'000
|
£'000
|
|
Non-current assets
|
|
|
|
|
|
|
Property plant and equipment
|
|
1,296
|
|
|
852
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Inventories
|
75
|
|
|
55
|
|
|
Trade receivables
|
143
|
|
|
95
|
|
|
Cash at bank and in hand
|
1
|
|
|
11
|
|
|
|
|
219
|
|
|
161
|
|
Total assets
|
|
1,515
|
|
|
1,013
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Ordinary share capital
(50p shares)
|
|
400
|
|
|
360
|
|
Share premium account
|
|
60
|
|
|
50
|
|
Retained Earnings
|
|
202
|
|
|
155
|
|
|
|
662
|
|
|
565
|
|
Non-current liabilities
|
|
|
|
|
|
|
Long-term loans
|
|
679
|
|
|
342
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Bank overdraft
|
17
|
|
|
0
|
|
|
Trade payables
|
91
|
|
|
51
|
|
|
Taxation payable
|
66
|
|
|
55
|
|
|
|
|
174
|
|
|
106
|
|
Total equity and liabilities
|
|
1,515
|
|
|
1,013
|
Required:
(a) Identify and calculate 10 key ratios that best illustrate the financial performance and financial position of Ilk Ltdin the years ended 31 December 2016 and 31 December 2017.
(b) Making full use of the information given in the question and the figures you have calculated in parts (a) and (b) above, advise John on the performance and position of the company.