Tillinton Co
Tillinton Co is a listed company which has traditionally manufactured children’s clothing and toys with long lives. Five years ago, it began manufacturing electronic toys and has since made significant investment in development and production facilities. The first electronic toys which Tillinton Co introduced into the market were received very well, partly as it was seen to be ahead of its competitors in making the most of the technology available.

The country where Tillinton Co is listed has seen a significant general increase in share prices over the last three years, with companies in the electronic goods sector showing particularly rapid increases.

Statement by Tillinton Co’s chief executive
Assume it is now September 20X3. Tillinton Co’s annual report for the year ended 31 March 20X3 has just been published. Its chief executive commented when announcing the company’s results:

‘I am very pleased to report that revenue and gross profits have shown bigger increases than in 20X2, resulting in higher post-tax earnings and our company being able to maintain increases in dividends. The sustained increase in our share price clearly demonstrates how happy investors are with us. Our cutting-edge electronic toys continue to perform well and justify our sustained investment in them. Our results have also benefited from improvements in operational efficiencies for our older ranges and better working capital management. We are considering the development of further ranges of electronic toys for children, or developing other electronic products for adults. If necessary, we may consider scaling down or selling off our operations for some of our older products.’

Steph Slindon represents an institutional investor who holds shares in Tillinton Co. Steph is doubtful whether its share price will continue to increase, because she thinks that Tillinton Co’s situation may not be as good as its chief executive suggests and because she believes that current share price levels generally may not be sustainable.

Financial information
Extracts from Tillinton Co’s financial statements for the last three years and other information about it are given below.

Tillinton Co statement of profit or loss in years ending 31 March
(all amounts in $m)

Required:
(a) Evaluate Tillinton Co’s performance and business prospects in the light of the chief executive’s comments and Steph Slindon’s concerns. Provide relevant calculations for ratios and trends to support your evaluation.

Note: 10 marks are available for the calculations. (20 marks)