You are the chief investment analyst for Big Ltd which is considering acquiring a controlling interest in its competitor Y Ltd. The financial statements of Y Ltd for the last three calendar years (see below) have been provided to you:

Income statement for the years ended 31 December

2016 ($'000) 2017 ($'000) 2018 ($'000)

Revenue 18,000 18,900 19,845

Cost of Sales 10,440 10,340 11,890

Gross profit 7,560 8,560 7,955

Distribution costs 1,565 1,670 1,405

Administration costs 1,409 1,503 1,591

Profits before interest and tax 4,586 5,387 4,959

Interest payable on bank overdraft 104 215 450

Interest payable on 12% Debentures 600 600 600

Profit before taxation 3,882 4,572 3,909

Income Tax 1,380 1,625 1,390

Profit for the year 2,502 2,947 2,519

Statement of Financial Position as at 31 December

Assets 2016 ($'000) 2017 ($'000) 2018 ($'000)

Non-current assets

Property, plant and equipment20,356 21,141 20,211

Current assets

Inventory 1,775 2,663 3,995

Trade Receivables 1,440 2,260 3,164

Cash 50 53 55

Total current assets 3,265 4,976 7,214

Total assets 23,621 26,117 27,425

Equity and Liabilities

Equity

Share capital 8,000 8,000 8,000

Retained Earnings 6,437 7,313 7,584

Total equity 14,437 15,313 15,584

Non-current liabilities

12% Debentures 5,000 5,000 5,000

Current liabilities

Trade Payables 390 388 446

Bank overdraft 1,300 2,300 3,400

Tax payable 894 1,045 747

Dividend Payable 1,600 2,071 2,248

Total current liabilities 4,184 5,804 6,841

Total equity and liabilities 23,621 26,117 27,425

Required:

Prepare report addressed to the Board of Directors of Big Ltd which will analyse the profitability, operating gearing, financial gearing, liquidity and efficiency of Y Ltd.