Question 1 [33]

Joseph is the owner of a business selling previously owned furniture and appliances. Joseph

wants to implement strategies that will expand the business and increase its value and

profitability. Joseph is very interested in making use of financial performance analysis tools to

assess and manage the financial performance of the business.

He approached you and requested that you assist him with the preparation of a common-size

statements of comprehensive income for the years ended 2018 and 2019.

He presented you with the following statements of comprehensive income for 2018 and 2019:

Statements of comprehensive income for the years ending 2018 and 2019

	2019	2018
Revenue	266 000	230 000
Cost of goods sold	160 000	142 000
Gross profit margin	106 000	88 000
General and administrative expenses	14 100	11 500
Marketing and selling expenses	16 700	15 200
Operating profit	75 200	61 300
Interest expense	12 000	15 000
Net profit before taxation	63 200	46 300
Income tax	18 960	13 890
Net profit for the year	44 240	32 410

Required:

1.1. Prepare a common-size statement of comprehensive income for the years 2018 and 2019. Show ONLY the final answers in the statement. (10)

Round off the all the calculations to the closest whole number.

1.2. For each line item in the common-size statement, indicate whether the financial performance of the business for 2019 was better, the same or worse than that of

2018. (5)

1.3. Comment on the profitability of the business by basing your comments on the profitability ratios included in the common-size statement. (18)