The document analyzes the financial performance of ELB Company for 2017-2018. It finds that while total revenues and gross profit increased, net profit decreased due to rising expenses. The balance sheet analysis finds that most asset values grew except trade receivables. Liabilities and equity also increased. Ratio analysis shows the company is liquid but could face difficulties servicing debt. Recommendations include reducing debt and expenses to boost profits.

1. Running head: ELB’s FINANCIAL PERFORMANCE 1
ELB’s Financial Performance
Student’s Name
University Affiliation

2. ELB’s FINANCIAL PERFORMANCE 2
Analysis of ELB’s financial performance
Introduction
Usually, analysis of the financial performance of a company involves considering
various the progress of all financial statement of the firm over a specific period. In several
occasions, the income statement, balance sheet, and financial ratios are examined to report
about the performance of the entity over during a particular year of income. Similarly, this
report will provide a financial performance analysis of ELB Company for the year ended 2017,
and as at the end of the 2018 fiscal year (Fridson & Alvarez, 2016).
Analysis of the Income statement of ELB Company
ELB Company is a stable that performs its operation with confidence to earn reasonable
profit to expand its operations. However, between 2017 and 2018, the company reported
adverse changes in its services, which led to a reduction in its financial performance. In general,
ELB Company reported a decrease in net profit in 2018, which was caused by different factors.
Even though ELB Company reported a decline in net profit, there was a significant increase in
the company's total revenues of $ 5.3 million which is equal to 18.3 % in 2018 compared to
total revenue in 2017 (Fridson & Alvarez, 2016). An increase in the company's total revenues
was due to increases in sales, which is an indication of excellent operation performance.
As well, ELB Company also reported an increase in the cost of sale in 2018 by $ 3.75,
which is equal to 18.5 % increase from the previous year' balance. The possible cause of an
increase in the cost of sales may be due to a rise in the cost of factors of production. Despite a
significant increase in the cost of goods sale of the company in 2018, ELB Company still
reported an increase in gross profit by $ 1.55 million in 2018 from $ 8.65 million of the previous
balance which translates to 17. 9 % increase in gross profit (Fridson & Alvarez, 2016). The
17.9 % increase in gross profit is an indication of god financial performance of ELB in 2018.

3. ELB’s FINANCIAL PERFORMANCE 3
Conversely, ELB Company reported an increase in total expenses in 2018 for the
previous year balance that contributed to a decrease in its net profit in 2018. In 2018 the
company administration and distribution expenses increased by $ 1.82 million (55.2%) from
the previous year's balance thus contributed to a decrease in net profits of the company. Also,
other expenses such as the financial cost of the company increased in 2018 to $ 0.52 million
from $ 0.45 million in 2017, thus contributing to a decrease in the net profit of the company.
However, net income tax of the company reduced in 2018 because it is always changed on the
amount of income earned during a particular year of income. Consequently, due to an increase
in the company’s operating expenses, ELB reported a slight decrease in the net profit of $ 0.24
million which is 6.85 % in 2018 (Hilton & Platt, 2015). As such, there is a need for the
management appropriate strategies to help to reduce the operation of expenses of ELB
Company.
Balance sheet analysis of the financial performance of ELB Company
Typically, a balance sheet is a financial tool that is used by the management to assess
the financial position of a business. This section of the report will determine ELB Company
financial performance using the balances and financial ratios. During the two fiscal years, ELB
Company reported significant changes in the values of particular of the balance sheet, which
led to a corresponding change in the balance sheet of ELB. First, non-current and current assets
of the company grew in 2018. For instance, the value of the total asset of ELB Company
increased by $ 8.73 million from $ 32.2 million in 2017 (Hilton & Platt, 2015). The increase
in the total value of assets was due to a rise in the value of individual assets between the two
financial years.
Even though most particulars increased in 2018, from the statement, the company
reported a decreasing trade receivable from $ 5.2 million in 2017 to $ 4.3 million in 2017. The
latter implies that some customers paid part of what they owned the company in 2018, thus

4. ELB’s FINANCIAL PERFORMANCE 4
leading to a decrease in the values of trade receivable (Hilton & Platt, 2015). Also, there is a
possibility that the company wrote off some of the bad debt owned by some customers, thus,
leading to a reduction in the value of trade receivables.
Furthermore, ELB also reported a significant change in the value of its liabilities and
equity over the two years. The value of the company’s liabilities and equity increased
expressively in 2018 from the previous year balances. The value of ordinary share capital of
the company remained the same in the 2017 and 2018 which implies that there was no
significant difference between the values of the common stock which mean that the value of
the company’s share capital did not change in 2018 (Hilton & Platt, 2015). Also, this means
that the company did not increase its share capital by issuing more share for subscription to
increases its capital base. The value of the company's common stock remained at $10 million
with a common per value of $ 1 per share.
On the other hand, the ELB Company realized an impressive increase in the retained
earnings in 2018 of $ 3.26 million. The increase in retained earning might result due to many
reasons. First, it might have risen a rise in net profit of the previous year, or the management
did not pay a dividend to shareholders of the company.
Besides and increases in retained in 2018, ELB Company also reported a considerable
gain from the revaluation of reserves. As such, the value of its reserves increased in 2018 by $
3.1 million from $ 1.1 million in 2017. The increase in the value of reserves was as a result of
gain from revaluation (Hilton & Platt, 2015). Consequently, this contributed to the general rise
in the financial performance of the company. Despite the increase in reserves, ELB Company
also reported gain from the revaluation of other reserves that helped to improve the financial
position of the company.
In addition to ordinary share capital, the company has other sources of money that the
management used to run business activities of the company. In both 2017 and 2018, the

5. ELB’s FINANCIAL PERFORMANCE 5
company did not change or increase debt capital. The value of long-term loan did not mean
that the company did not acquire more loan or paid the amount of credit due to its creditors.
But, the company's value of 6 % bond, which is due 2020 increased by $ 0.2 in 2018 from $
5.2 million in 2017 (Hilton & Platt, 2015). The decision to strengthen the 6 % bond is helpful
because it helps to increase the company capital base, but it affects the financial health of the
company because it reduces ELB's gearing.
Last of all, ELB’s trade and other payables increased in 2018, which infers that the
company increased its liquidity by acquiring more small loans. Increasing current liability of
the company can influence its operations because it might fail to attend to its short term
obligations in case of solvency which can lead to the dissolution of the company (Hilton &
Platt, 2015).
Ratio analysis of ELB Company
Quick ratio
Generally, a quick rate is used to assess the liquidity of a company. A more liquid
company is likely to face financial difficulties in case of liquidation.
Quick ratio = ($ 8.8 - $ 4.5 m) / $ 6.07 m
Quick ratio = 0. 7
Form the calculations, the value of the company quick ratio is 0.7. This implies that the
company is more liquid because its quick ratio is less than one. As such, ELB can face financial
difficulties, which can lead to dissolution.
Current ratio
Current ratio = $ 8.8 m / $ 6.07 m
Current ratio = 1.45

6. ELB’s FINANCIAL PERFORMANCE 6
The current ratio is used to asses if a firm can service its short responsibility using its
current assets. From the result, the value of current ratio ELB is greater than 1, which implies
that ELB can services its short term duties.
Gearing ratio
It is an expression of total debt as a percentage of the equity value of a company.
Gearing ratio = ($ 11.4 m / $ 23.46) x 100 %
Gearing ratio = 49 %
The results obtained from the calculation of the gearing ratio shows that the company
can service all its long term loan using its equity resources.
Conclusively, since ELB Company can meet all its obligations, it implies that the
company has excellent financial health, which has contributed improvement in performance.
Recommendations
To improve financial and organizational performance, the management of ELB should
consider the following Recommendations:
1. Reduce external funding such as loans to increase the net worth of shareholders’ equity
2. Implement appropriate operational strategies to minimize operation cost to increase the
net profit of the company.

7. ELB’s FINANCIAL PERFORMANCE 7
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