Isabel Travel Ltd was founded in the 1960’s. Their services include coach hire, day trips, UK breaks and European holidays. They lease most of their coaches but in January they bought three new electric coaches as a cost of £1 million. This was funded by five year 5% debentures.
The directors of Isabel Travel Ltd are gathering to discuss the financial results of the company. The year end is 30th June and forecasted financial statements are shown below along with actual results for 2017:
Forecasted Income Statement for the Year Ended 30th June 2018
Forecast 2017
£’000 £’000
Revenue 21,200 20,100
Cost of sales 19,000 18,300
GROSS PROFIT 2,200 1,800
Administration expenses 1,400 1,300
Distribution expenses 0 0
Operating Profit 800 500
Interest payments 50 0
NET PROFIT BEFORE TAX 750 500
Taxation 150 100
NET PROFIT AFTER TAX 600 400
Last year (2017) all earnings were distributed as dividends. The directors propose paying £500,000 dividends this year.
Forecasted Statement of Financial Position as at 30th June 2018
Forecast 2017
£’000 £’000
Non- Current Assets 3,300 2,300
Current Assets
Inventory 100 50
Receivables 1,050 900
Bank 250 450
1,400 1,400
Total Assets 4,700 3,700
Equity
Ordinary shares (£1 Nominal) 500 500
Retained earnings 900 800
Total Equity 1,400 1,300
Current Liabilities
Trade payables 1,650 1,900
Taxation 150 100
Proposed Dividend 500 400
2,300 2,400
Non-current Liabilities
5% Debentures 2022 1,000 0
Total Equity & Liabilities 4,700 3,700
Required:
Write a short report to the directors which analyses the forecasted financial position of Isabel Travel Ltd in comparison to the 2017 position.
You should include 8 ratios calculated for both years covering profitability, liquidity, performance, gearing and investment with supporting comments.
