3.1. Compare and comment on the profitability of both companies using the following ratios:3.1.1 Return on capital employed3.1.2 Profit margin3.2 Calculate the earnings retention ratio of both companies and explain how shareholders can benefit from a higher retention ratio.3.3 Compare the two companies with regard to the amount of debt that each company uses to finance its assets (as a percentage).3.4 Suggest two ways in which ABC Limited can improve its gross profit margin without increasing its selling prices.

Extracts of the Statement of Comprehensive Income and Statement of Financial Position for the year ended 31 December 2024 are given for the two companies viz. ABC Limited and XYZ Limited. Extract of Statement of Comprehensive Income for the year ended 31 December 2024: ABC LIMITED XYZ LIMITED R R Sales 3400000 1 000 000 Cost of Sales 2300000 432000 Depreciation 140 000 20 000 Other operating expenses 130 000 25000 Interest on loan 90 000 30 000 Income tax 222 000 148 000 Note: All the income and expenses of both companies are included in the figures above. Extracts of Statement of Financial Position as at 31 December 2024: ABC LIMITED XYZLIMITED R R Non-current assets 980 000 620 000 Current assets 857 500 205000 Share capital 1000 000 500000 Retained earnings 120 000 40 000 Non-current liabilities (15%) ' 510 000 230000 Current liabilities 207 500 55000 Extracts of Statement Changes in Equity for the Year ended 31 December 2024: ABC LIMITED XYZ LIMITED R R Dividend for the year 259 000 138 000 REQUIRED: Use the information provided above to answer the following questions: 3.1 Compare and comment on the profitability of both companies using the following ratios: 3.1.1 Return on capital employed (5) 3.1.2 Profit margin