SPIRE LTD RATIO Q

To: Directors of Spire Limited

From: A N Accountant

Re: Analysis of financial statements for year ended 31/12/2017 and 2016

I have reviewed the financial statements of Spire Limited for the year ended 31/12/16 & 17 and will be making commentary based solely on those statements. This report will be divided into 4 sections:

Profitability:

The company’s sales have increased by €735,000 (6%) to €12,680,000 between 2016 and 2017. During that time the gross rift margin reduced slightly from 43% to 42.5% and the net profit (before interest and tax) has also fallen by 0.5% to 26.2%. Therefore expenses as a % has remained the same at 16.3%. Therefore expenses interest paid has increased but taxation has slightly reduced resulting in net profit after tax increasing to €2,338,000.

The ROCE has fallen from 12.1% to 11.7% due to a reduction due to the reduction in non current liabilities not being matched by increase in equity and reserves. Overall the increase in sales has resulted in an increase in profits as gross profit only fell slightly and expenses % stayed the same.

Liquidity and Efficiency:

The current ratio increased from 1.05:1 to 1.12 but the acid test has remained the same at 0.76:1. This means that inventory as % of current assets has increased. The company has reduced long term debts and short term debt during the year but it has increased non-current assets by €900,000 without an increase in ordinary shares which suggests it was financed through short term bank facilities and from profits.

If the company cannot sell inventory, then it will not be able to pay its short term debts, but as the company has consistent sales and as inventory is only 10% of COS, it is unlikely there will be short term liquidity problems.

Working capital days have increased from 39 to 47, again decreasing the liquidity of the company, due mainly to the decrease in payable days and the increase in receivable days. Inventory days have remained similar. The company needs to review its credit policies to ensure receivable days don’t fall further.

Gearing and Investor Ratios;

As the company has reduced its long term liabilities by repaying €500,000 in debentures and their has been a change from 22.7% to 19.3% due to the combination of repayment debentures and increase in retained earnings

The earnings per share and dividend per share remained the same from 2016 to 2017. Investors might have expected to see an increase due to the increase in sales with the maintenance of profitability.

Overall, the company has remained very profitable but the company has not improved its performance but it has remained stagnant despite the increase in non-current assets.