The most recent financial statements of Indigo plc are summarised below:

Income Statement$m

Sales Turnover 2000

Cost of sales(1430)

Gross profit570

Administrative Expenses (500)

Operating Income

(i.e. Operating Profit, or EBIT)70

Interest (i.e. Finance costs)(10)

Earnings (Profit) before tax60

Taxation(18)

Net income (i.e. Profit for the year)42

Balance Sheet

Assets

Current assets

-Cash70

-Accounts Receivable250

-Inventory300

Total current assets620

Non-current assets

-Property, plant & equipment350

-Accumulated depreciation (100)

Net non-current assets250

TOTAL ASSETS870

Liabilities

Current liabilities

-Accounts Payable300

-Short-term loans50

Total current liabilities350

Long-term debt150

Total Liabilities500

Equity

-Common stock (share capital)*200

-Retained earnings170

Total Equity370

TOTAL LIABILITIES & EQUITY870

*The common stock consists of 200 million ordinary shares, which are currently trading in the stock market at a price of $2.18.

The following information is available on the latest industry-average financial ratios for the line of industry that Indigo plc is engaged in:

Current Ratio2.3X

Acid Test Ratio (i.e. Quick Ratio)1.2X

Average Collection Period 30 days

Inventory Turnover7X

Debt Ratio40%

Times Interest Earned (i.e. Interest Cover) 9X

Operating Return on Assets14.4%

Operating Profit Margin3.6%

Total Asset Turnover4X

Return on Equity10.5%

Price/Earnings Ratio16X

Price/Book Ratio 2.8X

Required:

By comparing the appropriate financial ratios of Indigo plc with the industry-average ratios, evaluate the company's performance and financial position under each of the following headings:

(i)Liquidity (i.e. the firm's ability to pay its current liabilities).

(ii)Solvency (i.e. the firm's capacity to service its overall debt - this depends largely on how much debt the firm uses to finance its assets).

(iii)Profitability (i.e. the rate of return on the assets the firm has invested in, and on the capital provided by the shareholders for this purpose).

(iv)Shareholder value (i.e. the stock market performance of the company).