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 $34000001000000$

Cost of Sales $2300000432000$

Depreciation $14000020000$

Other operating expenses $13000025000$

Interest on loan $9000030000$

Income tax $222000148000$

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 XYZ LIMITED

R R

Non$-$current assets $980000620000$

Current assets $857500205000$

Share capital $1000000500000$

Retained earnings $12000040000$

Non$-$current liabilities $(15\%)510000230000$

Current liabilities $20750055000$

Extracts of Statement Changes in Equity for the Year ended $31$ December $2024$:

ABC LIMITED XYZ LIMITED

R R

Dividend for the year $259000138000$

REQUIRED:

Use the information provided above to answer the following questions:

$3\mathrm{.}1$ Compare and comment on the profitability of both companies using the following ratios:

$3\mathrm{.}1\mathrm{.}1$ Return on capital employed $(5)$

$3\mathrm{.}1\mathrm{.}2$ Profit margin $(5)$

$3\mathrm{.}2$ Calculate the earnings retention ratio of both companies and explain how shareholders can benefit from a

higher retention ratio.

$(8)$

$3\mathrm{.}3$ Compare the two companies with regard to the amount of debt that each company uses to finance its assets

$($as a percentage$).$

$(5)$

$3\mathrm{.}4$ Suggest two ways in which ABC Limited can improve its gross profit margin without increasing its selling

prices.