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Prepare a brief report on the profitability of the business compared to the previous year with some recommendations as to possible courses of future action.
- Prepare a brief report on the profitability of the business compared to the previous year with some recommendations as to possible courses of future action. Tom has provided the following information about the year ended 31 December 2020 to assist with this task.
(40 marks)
| |
Sales | 300,000 |
Gross profit | 190,000 |
Total expenses | 60,000 |
Net profit | 120,000 |
Hint - you may use the following ratios for comparison:
- Gross profit margin = gross profit / sales x 100;
- Net profit margin = net profit / sales x 100;
You may also use percentage changes for comparison
hello, I need some help with this question please
The scenario Enterprise Print Limited is a small printing company. It had been highly profitable for a number of years and its growth had been quite remarkable. The Chairman and Managing Director, Tom Laird, had always been meticulous in supervising all company activities, but over recent years he has been finding it increasingly difficult to maintain day-to-day control. Tom has been careful to minimise the company's administrative costs. The annual financial accounts had always confirmed his intuitions about the company's progress, so there seemed to be no need for more frequent reporting. However, because of the recent pandemic, Enterprise Print Ltd has been finding it very difficult to win new contracts. It is company policy to depreciate all company vehicles at 20% per annum on a reduced-balance basis. The company's premises are listed buildings, and accordingly, there are restrictions on refurbishment. Tom had noticed deterioration, and he was relieved that these buildings are depreciated annually at 1% on a straight-line basis. It is company policy to pay a total dividend of 10,000, and Tom is proposing to retain this policy, but is not convinced it will be possible. Tom has explored various ways to improve the sales of the company, and the Marketing Manager, Siobhan McCall, has also outlined a number of ideas. Siobhan is proposing to start an online service for the local community; according to her business plan, the sales revenue would increase by 20%. However, Siobhan estimates that there will be an initial cost of 50,000, and operating costs will increase by 5%. Her second proposal is to allow discounts to students, which she forecasts will yield a 2% increase in revenue, after any additional costs. However, Tom is not convinced that providing service directly to students will increase the revenue. Tom is looking to approach local companies in an effort to promote his business. Tom decides to review the financial position of the company before making any decisions about future plans, and the company accountant prepare the Trial Balance for 31 December 2021 (see over). Trial Balance for Enterprise Print for the year ended 31 December 2021 Sales Sales returns Premises : cost 350,000 20,000 200,000 : opening cumulative depreciation 5,000 Vehicle cost 120.000 opening cumulative depreciation 12,000 Purchases 110,000 10,000 15,000 Purchase returns Light and heat Rent Bank 15,000 100,000 Insurance 6,000 Trade debtors /Receivables. 15,000 4,000 Bad debts written off during the year Bad debt provision (1 January 2021) Trade Creditors/payables 250 20,000 5,000 Loan interest paid Long term loan 110,000 Notes 1. The vehicles are depreciated at 20% per annum on a reduced-balance basis. 2. Premises are depreciated at 1% per annum on a straight-line basis. 3. The trade debtors' figure of 15,000 includes the bad debts of 4,000 and is before any provision. Analysis of the debts shows that additional bad debt of 500 should be written off. 4. After dealing with (3) the bad debt provision is to be maintained at 5% of debts. 5. Enterprise Print propose to pay a dividend of 10,000. 6. The tax for the year is 13,250, of which 6,600 was outstanding at 31 December 2021 7. The rent is paid yearly in advance on 1 February. 8. On 1 January 2021, there were 100,000 inventories and an 31 December 2021 there were inventories valued 80,000 unsold. The scenario Enterprise Print Limited is a small printing company. It had been highly profitable for a number of years and its growth had been quite remarkable. The Chairman and Managing Director, Tom Laird, had always been meticulous in supervising all company activities, but over recent years he has been finding it increasingly difficult to maintain day-to-day control. Tom has been careful to minimise the company's administrative costs. The annual financial accounts had always confirmed his intuitions about the company's progress, so there seemed to be no need for more frequent reporting. However, because of the recent pandemic, Enterprise Print Ltd has been finding it very difficult to win new contracts. It is company policy to depreciate all company vehicles at 20% per annum on a reduced-balance basis. The company's premises are listed buildings, and accordingly, there are restrictions on refurbishment. Tom had noticed deterioration, and he was relieved that these buildings are depreciated annually at 1% on a straight-line basis. It is company policy to pay a total dividend of 10,000, and Tom is proposing to retain this policy, but is not convinced it will be possible. Tom has explored various ways to improve the sales of the company, and the Marketing Manager, Siobhan McCall, has also outlined a number of ideas. Siobhan is proposing to start an online service for the local community; according to her business plan, the sales revenue would increase by 20%. However, Siobhan estimates that there will be an initial cost of 50,000, and operating costs will increase by 5%. Her second proposal is to allow discounts to students, which she forecasts will yield a 2% increase in revenue, after any additional costs. However, Tom is not convinced that providing service directly to students will increase the revenue. Tom is looking to approach local companies in an effort to promote his business. Tom decides to review the financial position of the company before making any decisions about future plans, and the company accountant prepare the Trial Balance for 31 December 2021 (see over). Trial Balance for Enterprise Print for the year ended 31 December 2021 Sales Sales returns Premises : cost 350,000 20,000 200,000 : opening cumulative depreciation 5,000 Vehicle cost 120.000 opening cumulative depreciation 12,000 Purchases 110,000 10,000 15,000 Purchase returns Light and heat Rent Bank 15,000 100,000 Insurance 6,000 Trade debtors /Receivables. 15,000 4,000 Bad debts written off during the year Bad debt provision (1 January 2021) Trade Creditors/payables 250 20,000 5,000 Loan interest paid Long term loan 110,000 Notes 1. The vehicles are depreciated at 20% per annum on a reduced-balance basis. 2. Premises are depreciated at 1% per annum on a straight-line basis. 3. The trade debtors' figure of 15,000 includes the bad debts of 4,000 and is before any provision. Analysis of the debts shows that additional bad debt of 500 should be written off. 4. After dealing with (3) the bad debt provision is to be maintained at 5% of debts. 5. Enterprise Print propose to pay a dividend of 10,000. 6. The tax for the year is 13,250, of which 6,600 was outstanding at 31 December 2021 7. The rent is paid yearly in advance on 1 February. 8. On 1 January 2021, there were 100,000 inventories and an 31 December 2021 there were inventories valued 80,000 unsoldStep by Step Solution
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