Question 1 Mabel is a potter and sells her pottery at stalls that she rents in four tourist information centres across the south of England. Extracts from her financial statements for the years ended 31 December 2021 and 2020 are shown below. Statement of profit or loss for the year ended 31 December: Revenue Cost of sales Gross profit Operating expenses Operating profit Non-operating expenses Net profit 2021 2020 28,900 27,200 (16,500) (14,000) 12,400 13,200 (3.800) (3,600) 8,600 9,600 (4,000) 4,600 9,600 Statement of financial position as at 31 December 2021 Non-current assets 22,660 2020 20,920 Current assets 4,360 3,750 Total assets 27.020 24.670 Equity 20,940 16,340 Non-current liabilities 3,000 3,500 Current liabilities 3,080 4,830 Equity and liabilities 27,020 24,670 The following information is also relevant: In July 2021 the rent on one of Mabel's stalls was increased significantly for the third time in three years so she decided not to renew the annual contract. She sold the shop fittings for 1,500 cash, making a loss on disposal of 400. She transferred the inventory from this store to her other shops. This closed store represented 20% of Mabel's sales for 2020. The closure resulted in two staff being made redundant at a cost of 3,600. In early 2021, Mabel accepted a 12% cost increase from her supplier of clay. She felt unable to pass this on to her customers through an increase in sales prices. Requirement: a) Based on the information provided, calculate the following ratios for the years ended 31 December 2021 and 2020. You should give the formula for each ratio, in addition to your calculation. L Gross profit margin. II. Operating profit margin III. Return on equity IV. Current ratio V. Gearing Page 2 of 8 10 marks b) By comparing the financial information for years ended 31 December 2021 and 2020, and reviewing your ratio calculations, comment on the profitability, liquidity, and long-term solvency of Mabel's business over the past year. You should use the other information given to suggest reasons for any changes identified. 10 marks If an investor was interested in buying Mabel's business and was presented with these results, what further advice would you give them? 5 marks Total 25 marks