Question 2 ABE plc sells only one product and in 2006, 10 000 units were sold. During 2007, the unit sales increased to 16 000 units but the profit was lower than expected. The accountant has been asked to prepare a report that can be used to discuss the company's performance and financial position at the next Board meeting. Prior to the meeting, you have received the following information in respect of the years 2006 and 2007 2006 2007 000 000 Sales 2000 2400 Net profit before interest and tax 700 360 Interest expense for the year 100 Tax payable Net profit after tax 180 Ratios (using the attached formulae) Profitability Gross Profit Percentage Net Profit Percentage (after tax) Return on Capital Employed Return on Shareholders' Funds 55% 21% 17.4% 13.0% 40% 5.6% 7.8% 3.9% Liquidity and efficiency ratios Current ratio Quick ratio Stock Holding Period (days) Debtor Payment Period (days) Creditor Payment Period (days) 88995 3.70 2.20 122 4.00 1.50 127 46 51 81 Financial Structure Gearing Interest Cover 20% 7.0 times 27% 2.1 times Required: A) Prepare a report that identifies possible causes of the changes in the profitability, liquidity and financial position of the company over the period of two years. B) Recommend a strategy that could be adopted to improve the performance and financial position of ABE plc. It is generally accepted that the selling price per unit cannot be increased without a major loss of market share. In addition, reductions in the cost of materials and labour are not possible