QUESTION2

(20Marks)

REQUIRED
Usetheinformationprovidedbelowtoanswerthefollowingquestions.(Answerstoratiosmustbeexpressed totwodecimalplaces.)
2.1	Compare and commentontheprofitability of bothcompanies byusingthefollowing ratios:
2.1.1	Returnoncapitalemployed	(4marks)
2.1.2	Profitmargin(Netprofitmargin)	(4marks)
2.2	Calculatetheearningsretentionratioofbothcompaniesandexplainhowshareholders canbenefitfromahigherretention ratio.
	(6 marks)
2.3	Comparethetwocompaniesregardingtheamountofdebtthateachcompanyusesto financeitsassets(asapercentage).
	(4 marks)
2.4	SuggestTWO(2)waysinwhichKLMLimitedcanimproveitsgrossprofitmarginratio, withoutincreasingitssellingprices.
	(2 marks)

INFORMATION

Extractsfortheyearended31December2022oftheStatementofComprehensiveIncomeandStatementofFinancialPositionaregivenbelow for twocompanies viz.KLMLimitedandZAPLimited.

ExtractofStatementofComprehensiveIncomefortheyearended31December2022
	KLMLimited	ZAPLimited
	R	R
Sales	6800000	2000000
Costofsales	4600000	864000
Depreciation	280000	40000
Otheroperatingexpenses	260000	50000
Interestonloan	180000	60000
Companytax	414400	276080

Note:Alltheincomeandexpensesofbothcompaniesareincludedinthefiguresabove.

ExtractofStatementofFinancialPositionasat31December2022
	KLMLimited	ZAPLimited
	R	R
Non-currentassets	1960000	1240000

Currentassets	1715000	410000
Sharecapital	2000000	1000000
Retainedearnings	240000	80000
Non-currentliabilities(15%)	1020000	460000
Currentliabilities	415000	110000

ExtractofStatementChangesinEquityfortheyearended31December2022
	KLMLimited	ZAPLimited
Dividendsfortheyear	R518000	R276000