Isaac Prentiss Limited produces parts and components for ships’ engines. The business requires a continuing investment in new machinery in order to keep production as efficient as possible. Isaac Prentiss is the founder and principal shareholder of the business, although he no longer takes an active part in management. Isaac is concerned because he feels that the business is borrowing too much.

Burgess, the managing director, assures Isaac that sales and operating profits continue to improve and that the borrowing is necessary to fund the general expansion of the business, including the acquisition of new fixed assets. In order to reassure Isaac, Burgess prepares the following statement of key extracts from the financial statements for the last five years:

20X8 20X7 20X6 20X5 20X4

£000 £000 £000 £000 £000 Sales 1 @35 {| 2 | 254! Wi est ies Operating profit 303 254 223 203 199 Interest payable (245) (181) (177) (70) (51)

Fixed assets 55 4 4 190 3'633 3) 23) 2 950 Borrowing 3 944 BSA) 2 766 Zeon, 2 431 CHAPTER 12 UNDERSTANDING FINANCIAL REPORTS: ANALYSIS OF TRENDS | 281 12210 You are required to analyse the company’s figures horizontally over the five-year period and write a brief report to Isaac on the results of the analy-

Sis. You should refer particularly to Isaac's concerns about the business borrowing.