Reference no: EM133164653

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.