Profitability - numerical questions
Question 1
Examine the data below, which is extracted from the accounts of Rattlebone Automobiles over a number of years.
| Year | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |
|---|---|---|---|---|---|---|
| (Units $k) | ||||||
| Sales | 12,000 | 13,000 | 12,000 | 10,000 | 12,000 | 15,000 |
| Gross profit | 5,000 | 5,000 | 6,000 | 4,000 | 5,000 | 8,000 |
| Net (trading) profit | 2,000 | 2,500 | 1,500 | (1,000) | 1,000 | 2,500 |
| Net capital employed | 22,000 | 23,500 | 25,000 | 25,000 | 24,000 | 26,000 |
Calculate the profitability ratios for each of these years.
Question 2
You have obtained the profitability figures for two other firms in the car business, and these are given below. The firms are Ocelot plc, a manufacturer of hand-made luxury sports cars, and Bridge plc, a mass producer of small family cars. Comment on your findings, and on the comparisons you can make.
At least all the data relates to the same industry, the car industry. Comparisons should be valid, therefore.
| Year | 2007 | 2008 | 2009 | 2010 |
|---|---|---|---|---|
| Ocelot plc | ||||
| ROCE | 8% | 8% | 7.5% | 4% |
| Gross profit margin | 55% | 60% | 50% | 50% |
| Net profit margin | 22% | 16% | (5%) | 12% |
| Bridge plc | ||||
| ROCE | 11% | 11% | 9% | 10% |
| Gross profit margin | 30% | 34% | 22% | 30% |
| Net profit margin | 8% | 7% | 5% | 8% |
| Interest rate | 5% | 7% | 10% | 6% |
Question 3
Jeremy Waite runs a small antiques shop. He is a sole trader and views the shop as a 'hobby more than a job'. He is curious about the financial performance of the shop and has provided extracts from two years' final accounts. He would like you to analyse the accounts to assess the profitability of the firm. The sales and balance sheet extracts are as follows:
| 2010 | 2011 | |
|---|---|---|
| $ | $ | |
| Sales | 16,544 | 14,870 |
| Cost of goods sold | 9,536 | 8,390 |
| Gross profit | 7,008 | 6,480 |
| Overheads | 3,119 | 4,890 |
| Net profit | 3,889 | 1,590 |
| Capital employed | 59,490 | 57,980 |
Required
(a) Calculate for both years the following ratios:
(i) Return on capital employed
(ii) Gross profit percentage
(iii) Net profit percentage
(b) Using your results from (a), analyse the profitability of the shop.
