9.19 Cryer Roussillon Limited is a trading company. At the beginning of the 2012 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 non-current 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 (all 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 summarized financial statements for 2012 (with comparative figures for 2011) are shown below.
Cryer Roussillon Limited: Income statement for the year ended 31 December 2012 2012 2011 £ £
Revenue 206 470 210 619 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 Finance costs (3 000) –
Profit before tax 40 813 21 220 Tax (8 100) (3 180)
Profit after tax 32 713 18 040 In the year ended 31 December 2011 Cryer Roussillon paid a dividend of £13 000 to its shareholders. In the year ended 31 December 2012 it paid no dividend.
Cryer Roussillon: Statement of financial position at 31 December 2012 2012 2012 2011 2011 £ £ £ £
ASSETS Non-current assets 129 490 68 750 Current assets Inventory 14 278 14 550 Trade receivables 20 693 29 420 Cash at bank 10 792 640 45 763 44 610 175 253 113 360 EQUITY AND LIABILITIES Equity Share capital 20 000 20 000 Retained earnings 109 783 77 070 129 783 97 070 Non-current liabilities Long-term borrowings 30 000 –
Current liabilities Trade payables 15 470 16 290 175 253 113 360 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 shown above. He would like you to calculate any key ratios which you consider to be important, and to provide an assessment of how the company is doing.