Statements of comprehensive income and financial position of ABC LIMITED for the year ended

Statement of Comprehensive Income of ABC LIMITED for the year ended 28 FEBRUARY 20X4
	20X3		20X4
Net sales (net income)		R3 000 000		R4 000 000
Less cost of sales		1 350 000		3 000 000
Direct labour costs	1000 000		350 000
Direct material costs	900 000		1 900 000
Indirect manufacturing costs	350 000		750 000
Gross profit		750 000		1 000 000
Less operating costs		400 000		610 000
Selling expenses	150 000		280 000
Depreciation	80 000		120 000
Administrative costs	170 000		210 000
Operating profit		350 000		390 000
Less interest paid		30 000		80 000
Profit before tax		320 000		310 000
Provision for tax (40%)		128 000		124 000
Net profit after tax		192 000		186 000
Less dividends to preference shareholders		5 000		4 000
Profit attributable to ordinary shareholders		187 000		182 000
Less dividends to ordinary shareholders		75 000		70 000
Retained profit (Earnings)		112 000		112 000
Less reserves		-
Undistributed profit for the year		R112 000		R112 000

	20X3		20X4
ASSETS (Employment of Capital)
Fixed assets		800 000		1 130 000
Land and buildings	300 000		425 000
Plant and equipment	700 000		735 000
Machinery			220 000
Less Accumulated depreciation	200 000		250 000
Other assets
Investments				50 000
Total long-term assets		800 000		1 180 000
Current assets		550 000		530 000
Cash	60 000		80 000
Marketable securities	30 000		30 000
Debtors	220 000		250 000
Inventory (stock)	200 000		150 000
Prepaid expenses	40 000		20 000
		R1 350 000		R1 710 000
LIABILITIES (Capital Employed)
Shareholders capital		200 000		250 000
Distributable reserves		650 000		700 000
Owners equity		850 000		950 000
Preference share capital		50 000		80 000
Shareholders interest		900 000		1 030 000
Long-term debt
Debentures		200 000		250 000
Total long-term liabilities		1 100 000		1 280 000
Current liabilities		250 000		430 000
Trade creditors	100 000		150 000
Bank overdraft	100 000		250 000
Arrear expenses	50 000		30 000
		R1 350 000		R1 710 000

Based on the financial statements, answer the following questions:

Assess the profitability of ABC Limited for the two years by calculating the financial ratios for each year:

Calculate ratios to measure profitability

Calculate ratios to measure resource utilisation.

Calculate the ratios in accordance with GAAP/IFRS

Apply the ratios to measure the profitability of the organisation correctly

Apply the ratios to measure resource utilisation in an organisation correctly

Compile a written report using the information that you have gathered and analysed in the previous question.

In order to make your report easy to read, include graphs, diagrams and tables, where appropriate; Use the reporting format required by your organisation. (If your organisation does not have a specific financial reporting format make sure that your report is logical and easy to read and understand.)

Include a comparative analysis and variance report for 20X3 and 20X4;

Explain the reasons for the variances;

Discuss how ABC Limited could have improved their profitability in the less profitable year and provide recommendations to management on how ABC could be more profitable in the future.

Recommend corrective actions that could be considered by this company