Please Answer part B: a,b,c,d
Interest coverage ratio Inventory turnover Net profit margin Operating profit margin Quick ratio Return on assets Return on equity Total asset turnover b) Based on your results from part a), compare and discuss the liquidity and capital structure of the two firms. (16 marks) PART A is continued on the next page... C) Perform a decomposition of operating profitability similar to that carried out in the textbook and compare the (8 marks) determinants of operating profitability for Ytrew and its competitor. Based on your analysis, discuss areas where Ytrew's management might seek improvements in order to match its competitor. d) Perform a DuPont decomposition of return of equity for Ytrew and its competitor and discuss any differences (7 marks) between the two firms. PART B: (45 marks) Dewqas Limited has prepared the following profit analysis, for the current financial year: Sales (150,000 units) 1,485,000 Variable expenses 712,500 Contribution margin 772,500 Fixed expenses 258,000 Profit $14,500 Management are considering a range of options to improve profitability. These options include reducing the selling price by $0.25 per unit and updating machinery and production methods. If machinery and production methods are updated, fixed expenses will increase by $76,000 per year and variable expenses will decrease by $1.40 per unit. However, management are concerned at the increased risk from changes to the level of operating gearing. If the selling price is reduced by $0.25 per unit, the number of units sold s expected to increase by 10%. There is no reason why management cannot reduce the selling price and update machinery and production at the same time. Required: a) Calculate the contribution margin per unit, total fixed costs, the breakeven point in units, and total expected (16 marks) profit for all of the possible choices that management can make. Present the results of your calculations in a table. Do not include formulas in your write-up. b) Complete the following table, showing expected profit at various sales levels for (i) the current state of (10 marks) operations (no changes) and (ii) the case where machinery and production methods are updated: Sales (units) 0 50,000 100,000 150,000 200,000 Expected profit (no change) Expected profit (machinery & production methods updated C) Based on your results for part (b) produce a profit-volume chart. Show both cases on the same set of axes. (9 marks) d) Based on your results to parts (a), (b) and (c), write a brief recommendation to management advising on the (10 marks) recommended course of action
