14.35 Cryer Roussillon Limited is a trading company. Shortly before the beginning of the 20X5 accounting year (which ends on 31 December) a new managing director was appointed. He made the strategic decision to alter the company's range of products. Previously, the company had concentrated on lower margin products within its industry, but the new MD decided to move into higher quality products which produce better margins. He has made several other changes to the company. He persuaded the board of directors that the company should invest in some badly needed new fixed assets, and the company took out a long-term loan to help finance the acquisitions. He has also obtained the agreement of the other directors (ail of whom are shareholders) not to propose any dividend this year, so that profits can be retained in the company to help finance future growth.

The summarised financial statements for 20X5 and 20X4 are as follows.

Cryer Roussillon Limited: Profit and loss accounts for the years ending 31 December 20X5 and 31 December 20X4 20X5 20X4

£

£

Sales 206470 210619 Cost of sales

(121 198)

(141 789)

Gross profit 85 272 68 830 Various expenses

(41 459)

(47 610)

Operating profit 43 813 21 220 Interest

(3 000)

—

Profit before taxation 40 813 21 220 Taxation

(8 100)

(3 180)

Profit after taxation 32713 18 040 Dividend

—

(13 000)

Retained profit 32713 5 040 Cryer Roussillon: Balance sheets at 31 December 20X5 and 20X4 20X5 20X5 20X4 20X4

£

£ £

£

Fixed assets 129 490 68 750 Current assets Stock 14278 14550 Debtors 20 693 29 420 Cash at bank 10 792 640 45 763 44 610 Creditors: amounts falling due within one year 15 470 16 290 30 293 28 320 20X5 20X5 20X4 20X4 Total assets less current £
£ £
£
liabilities 159 783 97 070 Long-term loan (30 000)x 129 783 97 070 Capital and reserves Share capital 20 000 20 000 Reserves 109 783 129 783 77 070 97 070 The managing director has asked you, as the company's financial adviser, to write a confidential report to the board commenting upon items of significance in the accounts. He would like you to calculate any key ratios that you consider to be important, and to provide an assessment of how the company is doing.