Performance for Shareholders
From the viewpoint of a potential shareholder who would be interested in the returns on his investment, ratios such as return on equity, return on capital employed, dividend per share, earnings per share, dividend yield, and dividend cover would be of essence to assessing the performance of the business.

The return on equity tells us the returns from the use of the shareholders fund and this has increased from 15.93% to 19.4% between 2018 and 2019. This means the business is performing well. The return on capital employed, tells us how the total assets less current liabilities have been utilised to generate returns. The business has an improved performance, because it has increased its return on capital employed by 4.87% (26.83-21.96) between 2018 and 2019.

The earnings per share tells us about the earnings before interest and tax that is attributable to ordinary shareholders and this has increased from ¢0.26 to ¢0.37. This could increase shareholders confidence in the business.

Performance for Lenders
From the viewpoint of the lender, who would be interested in how the business can pay back its debt when they fall due.

The debt ratio talks about the ratio of debt to asset in the business. Usually, a debt ratio of less than 50% is considered acceptable. The business has managed to reduce this ratio within the period under review. Gearing tells us about the ratio of long-term debt in the business. Again, the business has performed well to reduce it between the two years. This will increase her chance of getting more borrowings if needed. Further, a gearing ratio of less than 50% is said to be low gearing and is acceptable since the company depend less on borrowing. There is a reduction in risk that little will be available for distribution to ordinary shareholders.

Interest cover tells us whether the business has earned enough profit before interest and tax to pay its interest cost. From the analysis, the business has made enough EBIT to pay it interest cost by 10.5 times in 2018 and 12.9 times in 2019. It can be concluded that the business state of affairs currently is good and acceptable. It has improved on her performance between 2018 and 2019.

Weaknesses in the Ratios

• The ratios computed are not an end in themselves. More detailed analysis would be required to draw any meaningful conclusions.
• Since the ratios are based on the accounting statements, they measure what has happened in the past and not necessarily what will happen in the future.
• The interpretation of the ratios is sometimes dependent on how the ratio was formulated.
• The accounting policies of the entity may have influenced the results of these ratios. Different accounting methods (e.g. FIFO versus LIFO inventory valuation) can have an impact on financial ratios. Ratios may therefore not reflect real differences in the operations and financial health of companies.
• Making comparisons across industries can be difficult. Companies in different industries tend to have different financial ratios.

(8 marks: Analysis of performance = 6 marks, Any two weaknesses identified = 2 marks)