Financial statements of iPud Ltd are presented below.

Additional information

·    Payables includes $5620 (2017) and $5730 (2016) trade accounts payable; the remainder is accrued expenses.

·    Market prices of issued shares at year-end (2017):

Ordinary, $12.00 Preference, $6.70

IPUD LTD Comparative Statements of Financial Position as at 31 December ($000)
		2017			2016
	Current assets Cash and cash equivalents Receivables (all trade) Inventories	$	3 290 8 200   14 000		$	4 220 7 350   13 860
	Total current assets		25 490			25 430
	Non-current assets Property, plant and equipment		34 380			30 660
	Total non-current assets		34 380			30 660
	Total assets	$	59 870		$	56 090
	Current liabilities Payables	$	11 560		$	11 980
	Total current liabilities		11 560			11 980
	Non-current liabilities Interest-bearing liabilities		19 880			18 900
	Total non-current liabilities		19 880			18 900
	Total liabilities	$	31 440		$	30 880
	Equity Share capital Retained earnings	$	15 400 13 030		$	15 400   9 810
	Total equity	$	28 430			25 210

IPUD LTD Statement of Profit or Loss for the year ended 31 December 2017 ($000)
	Revenue (net sales) Less: Cost of sales				$	110 000 70 200
	Gross profit					39 800
	Less: Expenses Selling and distribution expenses Administrative expenses Finance costs					14 200 9 940 3 120
	Total expenses					27 260
	Profit before income tax Income tax expense					12 540 3 816
	Profit				$	8 724

IPUD LTD Statement of Changes in Equity for the year ended 31 December 2017 ($000)
	Share capital Ordinary (14 400 000 shares): Balance at start of period				$	14 400
	Balance at end of period					14 400
	Preference (500 000 shares): Balance at start of period					1 000
	Balance at end of period					1 000
	Total share capital				$	15 400
	Retained earnings Balance at start of period Total recognised profit for the period Dividend paid — ordinary Dividend paid — preference				$ (	9 810 8 724 5 404    (100	) )
	Balance at end of period				$	13 030

Required

A.   Calculate the following ratios for 2017. The industry average for similar businesses is also provided.

Industry average

1.   return on assets                             22.0%

2.   return on ordinary equity              20.0%

3.   profit margin                                  4.0%

4.   earnings per share                         45c

5.   price–earnings ratio                      12.0

6.   dividend yield                                5.0%

7.   dividend payout                             70%

8.   current ratio                                  2.5:1

9.   quick ratio                                     1.3:1

10. receivables turnover                      13.0

11. inventory turnover                         6.0

12. debt ratio                                       40.0%

13. times interest earned                      6.0

14. asset turnover                                1.8

B.   Given the above industry averages, comment on the company’s profitability, liquidity and use of financial gearing.

C.   Discuss the limitations of such an analysis.