Question
You are the managing Director of Multiple (PTY) Ltd, a company based in Angola. Multiple is looking to penetrate the Botswanan market and decides to
You are the managing Director of Multiple (PTY) Ltd, a company based in Angola. Multiple is looking to penetrate the Botswanan market and decides to do this via acquisition of an already operational company in Botswana.
Two companies, Botshelo Ltd and Maikano Ltd are presented to you as the MD. You are more interested in the profitability of the company rather than liquidity.
The following are extracts of the financial statements of the two companies for two years. Use them to answer the questions that follow.
BOTSHELO MAIKANO
year ended | 31/03/22 Pm | 31/03/21 Pm | 31/03/22 Pm | 31/03/21 Pm |
Revenue Cost of sales Gross Profit Other Operation expenses Profit from operations Finance cost Profit before tax Income Tax expense Net Profit for the period | 600 (300) 300 (120) 180 (20) 160 (50) 110 | 550 (250) 300 (105) 195 (19) 177 (55) 122 | 620 (320) 300 (90) 211880 (22) 188 (78) 110 | 560 (260) 300 (85) 215 (20) 195 (90) 105 |
Non Current Assets Inventories Trade receivables Cash Total Share Capital Reserves
Interest Bearing borrowings Current liabilities
| 600 60 80 10 750 150 360 510 150 90 750 | 570 50 75 20 715 150 320 470 150 95 715 | 455 55 90 15 615 110 185 295 240 80 615 | 440 50 80 15 585 110 155 265 240 80 585 |
Required
a. Calculate the following profitability ratios for both years and for each of the two companies;
i) Gross profit Margin
ii) Operating profit Margin
III) Return on assets
b) Based on your calculations above, comment on the profitability of the two companies
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