Isaac Prentiss Limited produce 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 non-current assets. In order to reassure Isaac, Burgess prepares the following statement of key extracts from the financial statements for the last 5 years:

Required: analyze the company’s figures horizontally over the 5-year period, and write a brief report to Isaac on the results of the analysis. You should refer particularly to Isaac’s concerns about the business borrowing.
 

Revenue Operating profit Finance costs Non-current assets Borrowing 2012 000 1 635 303 (245) 5 314 3 944 2011 000 1 421 254 (181) 4 190 2 921 2010 000 1 254 223 (177) 3 633 2 766 2009 000 1 181 203 (171) 3 237 2 510 2008 000 1 133 199 (151) 2 950 2 431