22.3 Expansion Ltd has raised additional funds by issuing a debenture of £1,600,000 at 10 per cent per annum in order to expand the business. The additional cash was received on 1 July 20X4.

The financial statements of the company for the years ended 30 June 20X4 and 20X5 are summarised below.

Profit and loss accounts 30.6.X4 30.6.X5

£000 £000

£000

£000 Sales 12,000 14,000 Cost of goods sold 9,400 11,050 Gross profit 2,600 2,950 Expenses:

Administrative expenses 500 560 Selling and distribution 1,350 1,450 Depreciation 60 70 Debenture interest 1,910 160 2,240 Net profit 690 Balance sheets 30.6.X4 710 30.6.X5 Fixed assets

£000 £000

£000

£000 At cost 1,400 1,800 Accumulated depreciation 300 370 c/f 1,100 1,430 Fixed assets b/f 1,100 . 1,430 Current assets Stock 2,720 3,000 Debtors 1,920 3,120 Bank 40 440 4,680 6,560 Less: Current liabilities Creditors 1,280 1,-690 Net current assets O o •rn 4,870 4,500 6,300 10% Debenture loan —
1,600 4,500 4,700 Share capital and reserves Issued share capital 3,000 3,000 Reserves 1,500 1,700 4,500 4,700 Required:
Using the above information, calculate appropriate ratios and comment on your assessment of the success of the expansion plan.