Electron Ltd is a company listed in the New York Stock Exchange that assembles electronic gadget for children which it then sells to both wholesale and retail customers.

The financial result for the year ended 30 June 2017 had deteriorated as compared to previous year. On 01 August 2017, in a board meeting, the directors recommended to take the following actions in an attempt to improve performance for the year ended 30 June 2018:

• To undertake more advertisement on radio and television.
• To introduce a bulk purchase discount for all wholesale customers.
• To close production lines that are incurring loss. This will enable the company to dispose surplus plant. Electron Ltd’s financial statements for the year ended 30 June 2018 are as follows:

Statement of profit or loss for the year ended 30June 2018

	$000
Revenue (25% Cash Sales)	7000
Cost of sales	(6038)
Gross Profit	962
Profit on disposal of plant	70
	1032
Operating Expenses	(648)
Finance Costs	(35)
Profit before Tax	349
Income tax Expense	(88)
Profit for the period	261

Statement of financial position as at 30June 2018

	$000
Non-current assets
Property, plant and Equipment	963
Current Assets
Inventory	438
Trade Receivables	630
Bank	-
	1068
Total assets	2031
Equity and Liabilities
Equity
Ordinary Shares of $0.25 each	175
Retained earnings	665
	840
Non current liabilities
10% Loan Notes	350
Current Liabilities
Bank overdraft	18
Trade Payables	753
Tax Payable	70
	841
Total Equity and liabilities	2031

Below are ratios calculated for the company of Electron Ltd for the year ended 30 June 2017:

Ratios

Return on year end capital employed (PBIT over capital employed)	28.1%
Net asset (capital employed) turnover	4 Times
Gross profit margin	17%
Net profit (before tax) margin	6.3%
Current ratio	1.6:1
Closing inventory holding period	46 days
Trade receivables’ collection period	45 days
Trade payables’ payment period	55 days
Dividend yield	3.75%
Dividend Cover	2 times

(i) The plant disposed had a carrying amount of $ 140,000 at the disposal date.

(ii) The company has paid a dividend of $ 158,000 for the year ended 30 June 2018 similar to last financial year.

(iii) The average share price of the company on the New York Stock exchange was $ 3.75.

(iv) There was no movement in ordinary share capital during the year.

REQUIRED

(a) Calculate ratios for the year ended 30 June 2018 for Electron Ltd, equivalent to those provided. Show all your workings. 

(b) Analyse the financial performance and position of Electron Ltd for the year ended 30 June 2018 compared to the previous year. 

(c) List three limitations of using ratio analysis.