STUDY the financial statements of XYZ Limited below and then ANSWER the following questions:

INCOME STATEMENT OF XYZ LIMITED FOR THE YEAR ENDED 28 FEBRUARY 2018
	2017 R		2018 R
Net sales (net income)		4 000 000		5 000 000
Less cost of sales		(3 150 000)		(4 000 000)
Direct labour costs	2 000 000		1 350 000
Direct material costs	950 000		1 950 000
Indirect manufacturing costs	200 000		700 000
Gross profit		850 000		1 000 000
Less operating costs		(500 000)		(710 000)
Selling expenses	190 000		330 000
Depreciation	100 000		160 000
Administrative costs	210 000		220 000
Operating profit		350 000		290 000
Less interest paid		(30 000)		(70 000)
Profit before tax		320 000		220 000
Provision for tax (28%)		(89 600)		(61 600)
Net profit after tax		230 400		158 400
Less dividends to preference shareholders		(6 000)		(3 000)
Profit attributable to ordinary shareholders		224 400		155 400
Less dividends to ordinary shareholders		(70 000)		(30 000)
Profit for the period		154 400		125 400
		-

BALANCE SHEET OF XYZ LIMITED AT 28 FEBRUARY 2018
	2017		2018
ASSETS
Fixed assets		900 000		1 230 000
Land and buildings	400 000		525 000
Plant and equipment	700 000		800 000
Machinery	0		195 000
Less Accumulated depreciation	(200 000)		(290 000)
Other assets
Investments		0		70 000
Total non-current assets		900 000		1 300 000
Current assets		650 000		630 000
Cash	70 000		90 000
Marketable securities	50 000		60 000
Debtors	250 000		270 000
Inventory (stock)	230 000		170 000
Prepaid expenses	50 000		40 000
TOTAL ASSETS		R1 550 000		R1 930 000
EQUITIES AND LIABILITIES
Shareholders capital		300 000		500 000
Distributable reserves		750 000		720 000
Owners equity		1 050 000		1 220 000
Preference share capital		100 000		100 000
Total Shareholders interest		1 150 000		1 320 000
Non-current liabilities
Debentures		200 000		280 000
		1 350 000		1 600 000
Current liabilities		150 000		330 000
Trade creditors	75 000		100 000
Bank overdraft	25 000		200 000
Arrear expenses	50 000		30 000
TOTAL EQUITY AND LIABILITIES		R1 550 000		R1 930 000

10049 SO1 (AC1) / SO2 (AC1, AC2)

115821 SO1 (AC2, AC3) / SO2 (AC1, AC2)

ASSESS the profitability, liquidity, solvency and financial structure of XYZ Limited for the two years by CALCULATING the following financial ratios for each year:

	2017	2018
Gross Profit Margin (Gross profit percentage)
Net Profit Percentage
Working Capital (Current) Ratio
Debt to Equity Ratio
Rate of return on Total Capital (after tax)
Yield on Shareholders Interest

10049 SO1 (AC2) / SO2 (AC3)

115821 SO2 (AC3)

DISCUSS how XYZ Limited could have improved their profitability in the less profitable year and PROVIDE recommendations to management on how XYZ could be more profitable in the future.