This document analyzes the financial performance of ELB Company over 2017-2018 based on its income statement and balance sheet. The income statement analysis shows that while revenues grew in 2018, costs also increased, leading to a small fall in net profit. The balance sheet analysis indicates that total assets and retained earnings grew from 2017-2018, showing improved financial performance. Ratio analysis finds the company is liquid with a quick ratio below 1 and current ratio above 1. The document recommends ELB minimize external funding and costs to further increase profits.

1. Running head: ELB FINANCIAL ANALYSIS 1
ELB Financial Analysis
Name
Institution Affiliation

2. ELB FINANCIAL ANALYSIS 2
ELB Financial Analysis
Introduction
In most occasion, analysis of a firm's financial statement is performance top assess the
changes that contribute to improvement in business performance. When performing such reviews,
various factors are considered. Some of the statements considered are like the balance sheet, the
income statement, and financial ratios. Information obtained from these statements can be used to
prepare a report for strategic decision making. Similarly, this report will critically analyze the
financial statement to discuss the financial performance of ELB Company over the two years of
income.
Income Statement
The financial performance of ELB Company slightly improved in 2018 compared to its
value in 2017. The company reported a significant change in some critical particulars in the income
statement between 2017 and 2018 fiscal year. First, ELB reported an annual fall of the net profit
in 2018 from the preceding year of income. The fall in net profit was accredited to the general rise
in the cost of sales in 2018. Even though the net profit of the company fall in 2018, the value of its
total revenues grew by $ 5.3 million from $ 28.9 in 2017 (Fridson & Alvarez, 2016). The rise in
the revenue was attributed to an increase in net sales in 2018 compared to that of the previous year.
The rise in the revenues translated to 18.3 % growth in 2018 from the total revenue in 2017. The
increase in revenues in 2018 is a sign of the excellent performance of the company.
On the other hand, ELB Company reported a rise in the cost of sales in 2018 by $ 3.75
from the previous year. This was equivalent to 18.45 percentage change in the cost of sales. The
increase in the cost of sales in 2018 is a sign that the cost of production and other related cost
increased in 2018 (Fridson & Alvarez, 2016). As such, this is likely to affect the operation of ELB

3. ELB FINANCIAL ANALYSIS 3
because it reduces the profitability of the firm. Even though the firm encountered an increase in
production cost, ELB Company still realized a rise in gross profit by $ 1.545 million in 2018. The
value represents a 17.87% increase in gross profit from the previous year, which value, which was
approximately $ 8.65 million (Fridson & Alvarez, 2016). The rise in the gross profit in 2018 was
a sign that the company performed well during the year despite the tremendous increase in costs
of sales. Intrinsically, there is a need for the management of ELB to employ appropriate operation
strategies that aim to minimize production cost to enable the company to realize a gross profit in
the future.
On the same note, ELB's administration and other related expenses increased in 2018,
which led to a decrease in the net profit. For instance, in 2018, administration and distribution cost
increased by $ 1.82 from last year's balance of $ 3.3 million (Stein, 2019). The rise in these
expenses led to a decrease in the net profits of the firm. Therefore, the management of ELB needs
to minimize administration and distribution expenses to improve the company's performance.
Similarly, other expenses of ELB Company also increased in 2018 from last year's balance. For
example, finance costs and additional related costs of ELB rose in 2018 by $ 0.07 million, which
brought significant change in net profit of the firm. The latter implies that the management of ELB
spent more financial resources to acquire financial support from other sources to support the
business operations of the company.
Consequently, this contributed to a decrease in the company's net profit in 2018 than the
balance of the previous year. Since the company incurred a lot of expenses in 2018, its profit before
tax during tremendously decreased, which was an indication of poor financial performance for the
firm (Stein, 2019). As a result, the amount of income tax charged on the firm's profit before tax
was related lower than the previous year balance since the amount of income tax paid by affirming

4. ELB FINANCIAL ANALYSIS 4
depends on the amount of profit made during the year. As a result of the general increase in
expenses of ELB especially administration, distribution and finance cost in 2018 than in 2017, the
company reported a decrease in net profit for the year which shows that ELB performed poorly in
2018. For instance, its net profit in 2018 decreased by $ 0.24 million, which was equivalent to
6.847% deficit in 2018. Therefore, the management of ELB should employ appropriate strategies
to help improve the performance of the company in the years to come to ensure continuity of the
company as well as improvement in financial performance.
Statement of financial position analysis
Usually, the information reported in a balance sheet of a firm can be used by the
management and other stakeholders to assess the financial performance of the business. A rise in
the value of particulars in the balance sheet is a sign of improvement in financial performance
while a decrease in value signifies poor performance (Rivera, 2014). This section of the report will
focus on the various change in the balance sheet of ELB Company attributed to an increase in the
firm’s performance between 2017 and 2018 financial year.
In 2018 financial year, the company reported significant changes in both current and non-
current, which signifies an improvement in the financial performance in 2018 compared 2017
balances. For example, the total assets of the firm grew from $ 32.2 million in 2017 to $ 40.93
million in 2018, which was a significant improvement in the value of the firm.
On the other side, ELB's net trade receivable declined in 2018 from the previous year
balances. For instance, in 2017, the value of trade receivables were $ 5.2 million, but in 2018, the
amount reduced to $ 4.3. The main reason for the reduction in trade receivables might be that the
company's debtors paid the company their due thus decreasing the value of trade receivables

5. ELB FINANCIAL ANALYSIS 5
(Hilton & Platt, 2015). Typically, a decrease in the value of trade receivables is an improvement
in financial performance because the company can manage its debts.
ELB also reported substantial changes in the value of its equity and liabilities in 2018 from
the previous year. Even though the difference in the company's equity helps in improving its capital
base, the company should focus on increasing equity value than increasing its liabilities (Hilton &
Platt, 2015). The cost of ELB's ordinary shares remained the same for both 2017 and 2018 financial
years which mean that company did not issue new shares for subscription to attract public funds
as a way of generating more capital. Nonetheless, ELB reported a substantial rise in retained
earnings in 2018 of $ 3.26 million compared to the previous year balance. The increase in the value
of retained income shows that ELB tried to increase its capital with internal funding by keeping a
more significant percentage of its profits to improve its financial performance (Hilton & Platt,
2015). The positive change may can about due to the company either reducing the amount of
dividend paid to shareholders or not distributing any dividends but to return a net profit to finance
business activities of the firm. This shows a sign of improvement in the financial performance of
ELB in 2018; thus, the management should aim at increasing its retained earnings in the subsequent
years to reduce the liquidity of the firm. As such, the return on capital (ROCE) of ELB 2018
increased due to a decrease in dividends paid to shareholders during the year.
As ELB's retained earnings for 2018 increases, the value of term loans did not change,
which means that the company did not acquire more loan in 2018 to finance its operations. But
the value of the firm's 6 % bond increased in 2018, which infers that the management raised the
company's source through bonds (Hilton & Platt, 2015). Also, should term liabilities of ELB rose
in 2018 from the previous balances of 2017, which means the management increased the liquidity
of the company by increasing the value of short-term liabilities.

6. ELB FINANCIAL ANALYSIS 6
Ratio analysis of ELB Company
Typically, ratios are used to examine the performance of companies during a particular
period. In this report, the following rates will be considered to assess the financial performance of
ELB.
Quick ratio
Quick ratio
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 suggests that the
company is more liquid because its quick ratio is less than one.
Current ratio
Current ratio = $ 8.8 m / $ 6.07 m
Current ratio = 1.45
The current ratio is used to determine whether a company can pay for all its short term
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
Gearing ratio = ($ 11.4 m / $ 23.46) x 100 %
Gearing ratio = 49 %
The results from the calculation shows that ELB can use its equity resources to pay its long
term loans.

7. ELB FINANCIAL ANALYSIS 7
Recommendations
For ELB Company to increase its financial performance, the management should put into
consideration the following recommendations:
1. Minimize the company’s external funding to reduce the liquidity of the firm.
2. Minimize administration and distribution to increase the net profit of the company.

8. ELB FINANCIAL ANALYSIS 8
References
Fridson, M. S., & Alvarez, F. (2016). Financial statement analysis: A practitioner's guide.
Hoboken, N.J: John Wiley & Sons.
Graham, L. (2015). Internal control audit and compliance: documentation and testing under the
new COSO framework.
Hales, J. (2016). Accounting and financial analysis in the hospitality industry. Routledge.
Hales, J. (2017). Accounting and Financial Analysis in the Hospitality Industry: The Use of Reason
in Argument. Pearson Education, India.
Hilton, R. W., & Platt, D. E. (2015). Managerial accounting: creating value in a dynamic business
environment. McGraw-Hill Education.
Jagels, M. G., Jagels, M., & Ralston, C. E. (2016). Hospitality management accounting. John
Wiley and sons.Pletzer, J. L., Nikolova, R., Kedzior, K. K., & Voelpel, S. C. (2015). Does
gender matter? Female representation on corporate boards and firm financial performance-
a meta-analysis. PloS one, 10(6), e0130005.
Post, C., & Byron, K. (2015). Women on boards and firm financial performance: A meta-
analysis. Academy of Management Journal, 58(5), 1546-1571.
Rivera, M. (2014). RevPAR-Adjusted Budgets: The Only One's Worth Looking at. VHS Asset
Management & Advisory.
Stein, S. S. (2019). Integrated reporting management: Analysis and applications for creating
value.
Weaver, S. (2018). Essentials of Financial Analysis. Blacklick: McGraw-Hill Publishing.