STATEMENT OF FINANCIAL POSITION
2022-2023 2021-2022 2020-2021 2019-2020 2018-2019
Non-Current Assets 16.74% 23.41% 24.29% 22.97% 22.99%
Current Assets 83.26% 76.59% 75.71% 77.03% 77.01%
Total Assets 100% 100% 100% 100% 100%
Share Capital and Reserves 51.25% 66.32% 71.12% 76.64% 78.27%
Non-Current Liabilities 4.05% 5.60% 5.03% 3.80% 1.80%
Current Liabilities 44.70% 28.09% 23.85% 19.55% 19.93%
Total Equity and Liabilities 100% 100% 100% 100% 100%
STATEMENT OF PROFIT OR LOSS
2022-2023 2021-2022 2020-2021 2019-2020 2018-2019
Net Turnover 100% 100% 100% 100% 100%
Cost of Sales 71.46% 74.26% 70.64% 71.01% 71.67%
Gross Profit 28.54% 25.74% 29.36% 28.99% 28.33%
Selling and Distribution Costs 10.02% 10.99% 12.52% 12.64% 13.89%
Administrative Expenses 1.00% 1.13% 1.28% 1.34% 1.41%
Other Expenses 1.63% 1.16% 1.27% 1.66% 1.16%
Other Income 2.35% 1.76% 1.69% 2.30% 1.66%
Profit from Operations 18.24% 14.22% 15.98% 15.64% 13.54%
Finance Cost and Bank Charges 0.16% 0.23% 0.23% 0.22% 0.10%
Profit Before Taxation 18.08% 13.99% 15.75% 15.42% 13.43%
Taxation 6.70% 4.57% 4.52% 4.24% 3.93%
Profit After Taxation 11.38% 9.42% 11.23% 11.18% 9.50%
INTERPRETATION OF VERTICAL ANALYSIS
Over the five-year period from 2018 to 2023, the company’s financial statements reveal
significant trends in its asset structure, liabilities, and profitability, which reflect broader strategic
shifts in the company’s approach to managing its resources, costs, and profitability.
Starting with the Statement of Financial Position, the proportion of non-current assets, which
includes long-term investments, property, plant, and equipment—has steadily declined from
22.99% in 2018-19 to 16.74% in 2022-23. This downward trend suggests that the company is
divesting from its long-term capital assets or is seeing these assets depreciate at a faster rate. The
declining share of non-current assets in the total asset base could indicate that the company is not
heavily reinvesting in long-term projects or infrastructure, which might be concerning if it
implies that the company is not positioning itself for long-term growth. However, it could also
mean that the company is becoming more asset-light and focuses on more efficient use of its
existing assets.
Conversely, current assets—which include cash, inventory, and receivables—have increased
steadily over the same period. In 2018-19, current assets accounted for 77.01% of total assets,
and by 2022-23, they made up 83.26%. This shift indicates that the company is focusing more on
liquidity and short-term operations. Holding a higher proportion of current assets could be
beneficial in terms of flexibility, allowing the company to more easily meet short-term
obligations and seize immediate business opportunities. However, it might also suggest that the
company is cautious about making long-term investments, possibly due to uncertainties in the
market or internal challenges in financing long-term projects.
The changes in equity and liabilities further highlight important shifts in the company’s financial
structure. Share capital and reserves, which represent the shareholders’ equity in the company,
have decreased significantly, dropping from 78.27% of total equity and liabilities in 2018-19 to
just 51.25% in 2022-23. This sharp decline in equity could be the result of several factors,
including large dividend payouts, share buybacks, or accumulated losses that have eroded the
company’s capital base. A decrease in equity is often seen as a negative signal, as it reduces the
buffer that protects the company’s creditors and indicates less owner investment in the business.
The reduction in equity is concerning when viewed alongside the sharp increase in current
liabilities.
Over the same period, current liabilities—which include short-term debt, accounts payable, and
other short-term obligations—have risen dramatically from 19.85% in 2018-19 to 44.70% in
2022-23. This substantial increase suggests that the company is increasingly relying on short-
term financing to fund its operations. While current liabilities are a normal part of business
operations, such a large increase could indicate that the company is under liquidity pressure or is
opting for short-term borrowing to meet its immediate needs rather than raising capital through
long-term loans or equity financing. If this trend continues, it could raise concerns about the
company’s ability to meet its short-term obligations, especially if its revenue or cash flow
generation becomes constrained.
At the same time, non-current liabilities have also increased, albeit to a lesser extent, rising from
1.80% in 2018-19 to 4.05% in 2022-23. This suggests that the company has taken on more long-
term debt, possibly to fund longer-term investments or strategic initiatives. While an increase in
long-term debt can be a positive indicator of future growth potential, it also places additional
pressure on the company to generate sufficient earnings in the future to meet these obligations.
Overall, the combination of rising current and non-current liabilities, coupled with a decline in
equity, suggests that the company is shifting toward a more debt-heavy capital structure, which
may increase financial risk, particularly if the company faces challenges in generating consistent
revenue or managing costs effectively.
Turning to the Statement of Profit or Loss, we can see how these changes in the company’s
financial structure have affected its operational performance and profitability. Over the five-year
period, the company’s cost of sales has remained relatively stable, ranging between 70% and
74% of revenue. In 2022-23, the cost of sales was 71.46%, compared to 71.67% in 2018-19. This
consistency suggests that the company operates in a high-cost environment, possibly due to high
production costs or competitive pressures that limit its ability to raise prices. The high cost of
sales has kept the company’s gross profit margins relatively narrow, hovering around 28-29%
over the five-year period.
Despite these challenges, the company has managed to control its operating expenses effectively.
Selling and distribution costs, for example, have decreased from 13.89% in 2018-19 to 10.02%
in 2022-23, reflecting improved efficiency in the company’s sales and distribution operations.
This could be due to better supply chain management, cost-cutting measures, or investments in
technology that have reduced the need for expensive sales and distribution activities. Similarly,
administrative expenses have declined slightly from 1.41% to 1.00% over the same period,
suggesting that the company is effectively managing its overhead costs.
As a result of these improvements in operational efficiency, the company’s profit from
operations has increased from 13.54% in 2018-19 to 18.24% in 2022-23. This indicates that the
company is becoming better at converting its revenue into operating profit, despite the challenges
posed by high production or procurement costs. This improvement in operating profitability is a
positive sign, as it suggests that the company is taking steps to streamline its operations and
manage its resources more effectively.
The company’s profit before taxation has also improved, rising from 14.93% in 2018-19 to
18.08% in 2022-23. This suggests that the company’s overall profitability is improving, likely
due to a combination of cost control measures and operational improvements. Profit after
taxation has also increased, rising from 9.50% in 2019-20 to 11.38% in 2022-23. The steady rise
in net profit indicates that the company is becoming more profitable over time, despite the
challenges it faces in terms of cost management and rising liabilities.
In summary, the company has experienced significant changes in both its financial position and
operational performance over the five-year period from 2018 to 2023. While the decline in
equity and the rise in liabilities raise some concerns about the company’s financial structure and
potential liquidity risks, the improvements in operational efficiency and profitability suggest that
the company is making progress in managing its resources effectively. Going forward, the
company may need to focus on balancing its capital structure by either reducing its reliance on
short-term debt or increasing its equity base to ensure long-term financial stability. Additionally,
continued efforts to control costs and improve gross margins will be crucial to sustaining its
profitability in the future.
