Element Sdn Bhd (Element) is a company which manufactures and sells plastic furniture. The directors have pursued a policy of rapid expansion since April 2019. A number of new products have been developed and market share has increased. Elements accounting department is finalising its accounting statements for the year ended 31 March 2021. These statements will be presented to the forthcoming meeting of the board of directors where the financial results for the year will be assessed. When reviewing the accounts, the directors will study four target ratios identified in loan covenants given to Elements bankers.

The target ratios set out in the contractual arrangements between Element and the bank are as follows:

Quick ratio	1.1:1
Current ratio	1.5:1
Interest cover	9.5 times
Debt to equity ratio	0.5:1

The draft accounts are as follows:

ELEMENT SDN BHD

Statement of Financial Position as at 31 December

	2020	2021
	RM'000	RM'000
Non-Current Assets:
Property, Plant & equipment	230,000	180,000
Total Non-Current Assets	230,000	180,000
Current Assets:
Inventories	19,500	15,200
Account Receivables	14,200	14,700
Cash & Cash equivalents	8,240	12,400
Total Current Assets	41,940	42,300
TOTAL ASSETS	271,940	222,300
Equity & Liabilities
Equity:
Share Capital	80,000	50,000
Share Premium	10,000	5,000
Retained earnings	65,290	63,500
Total Equity	155,290	118,500
Non-Current Liabilities:
Long Term Loan	100,000	90,000
Total Non-Current Liabilities	100,000	90,000
Current Liabilities:
Account Payables	15,900	13,300
Current Tax Payables	750	500
Total Current Liabilities	16,650	13,800
TOTAL EQUITY & LIABILITIES	271,940	222,300
Other Relevant Information:
Sales Revenue	86,400	81,100
Cost of Goods Sold	68,990	67,074
Administrative Expenses	2,460	2,146
Distribution Costs	4,750	4,080
Interest Expenses	5,300	4,600
Income Tax	710	400
Profit after Tax	4,190	2,800

1. Compute the following ratios for both years in relation to Element Sdn Bhd:

1. Quick Ratio.
2. Current Ratio.
3. Times Interest Earned.
4. Debt to Equity.
5. Profit Margin.

13. marks)

b. Prepare a detailed report to the Director of Element Sdn Bhd on the company's position and performance in terms of liquidity, profitability and solvency. Use the ratios calculated at (a) above as the basis for your commentary.