Question
Use the information provided below to answerthe following questions. (Answersto ratios must be expressed to two decimal places.) 2.1 Compare and comment on the profitability
| Use the information provided below to answerthe following questions. (Answersto ratios must be expressed
to two decimal places.) | ||
| 2.1 | Compare and comment on the profitability of both companiesby using the following
ratios: | |
| 2.1.1 | Return on capitalemployed | (4 marks) |
| 2.1.2 | Profit margin(Net profit margin) | (4 marks) |
| 2.2 | Calculate the earnings retentionratio of both companies and explain how shareholders
can benefit froma higher retention ratio. |
(6 marks) |
| 2.3 | Compare the two companies regarding the amount of debt that each company uses to
finance its assets (as a percentage). |
(4 marks) |
| 2.4 | Suggest TWO (2) ways in which KLM Limited can improve its gross profit marginratio,
without increasing itsselling prices. |
(2 marks) |
INFORMATION
Extracts for the year ended 31 December 2022 of the Statement of Comprehensive Income and Statement of Financial Position are given below for two companies viz. KLM Limited and ZAP Limited.
| Extract of Statement of Comprehensive Income for the year ended31 December 2022 | ||
| KLM Limited | ZAP Limited | |
| R | R | |
| Sales | 6 800 000 | 2 000 000 |
| Cost of sales | 4 600 000 | 864 000 |
| Depreciation | 280 000 | 40 000 |
| Otheroperating expenses | 260 000 | 50 000 |
| Interest on loan | 180 000 | 60 000 |
| Companytax | 414 400 | 276 080 |
Note: All the income and expenses of both companies are included in the figures above.
| Extract of Statement of Financial Position as at 31 December 2022 | ||
| KLM Limited | ZAP Limited | |
| R | R | |
| Non-current assets | 1 960 000 | 1 240 000 |
| Current assets | 1 715 000 | 410 000 |
| Sharecapital | 2 000 000 | 1 000 000 |
| Retained earnings | 240 000 | 80 000 |
| Non-current liabilities(15%) | 1 020 000 | 460 000 |
| Current liabilities | 415 000 | 110 000 |
| Extract of Statement Changes in Equity for the year ended 31 December 2022 | ||
| KLM Limited | ZAP Limited | |
| Dividends for the year | R518 000 | R276 000 |
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
