https://file.aiquickdraw.com/mathbot/file/1727370631046ipm9z6jb.pdf

The first question in your assignment involves calculating several financial ratios for ABC Ltd based on the financial statement extracts for the years 2021, 2022, and 2023. Let's break it down:

### Given Data (in Kshs):

| **Item**                   | **2023**  | **2022**  | **2021**  |
|----------------------------|-----------|-----------|-----------|
| Net Sales                  | 1,600,000 | 1,320,000 | 1,248,000 |
| Cost of Sales              | 1,121,000 | 897,000   | 826,000   |
| Gross Profit               | 479,000   | 423,000   | 422,000   |
| Operating Expenses         | 254,000   | 259,000   | 251,000   |
| Net Income Before Tax      | 225,000   | 164,000   | 171,000   |
| Tax Expense                | 90,000    | 65,600    | 68,400    |
| Net Income After Tax       | 135,000   | 98,400    | 102,600   |

### Required Ratios

1. **Cost of Goods Sold as a Percentage of Sales**:
   Formula: 
   \[
   \text{Cost of Goods Sold %} = \left( \frac{\text{Cost of Sales}}{\text{Net Sales}} \right) \times 100
   \]

2. **Gross Profit Margin**:
   Formula: 
   \[
   \text{Gross Profit Margin} = \left( \frac{\text{Gross Profit}}{\text{Net Sales}} \right) \times 100
   \]

3. **Operating Profit Margin**:
   Formula: 
   \[
   \text{Operating Profit Margin} = \left( \frac{\text{Net Income Before Tax}}{\text{Net Sales}} \right) \times 100
   \]

4. **Net Profit Margin**:
   Formula: 
   \[
   \text{Net Profit Margin} = \left( \frac{\text{Net Income After Tax}}{\text{Net Sales}} \right) \times 100
   \]

I will now calculate these ratios for each year.

Here are the calculated financial ratios for ABC Ltd:

### 1. Cost of Goods Sold as a Percentage of Sales:
- 2023: 70.06%
- 2022: 67.95%
- 2021: 66.19%

### 2. Gross Profit Margin:
- 2023: 29.94%
- 2022: 32.05%
- 2021: 33.81%

### 3. Operating Profit Margin:
- 2023: 14.06%
- 2022: 12.42%
- 2021: 13.70%

### 4. Net Profit Margin:
- 2023: 8.44%
- 2022: 7.45%
- 2021: 8.22%

### Observations:
- **Cost of Goods Sold** has increased steadily over the years, indicating that the company is spending a higher percentage of its sales on production costs.
- **Gross Profit Margin** has been declining, suggesting the company is becoming less efficient at generating profit after deducting the cost of sales.
- **Operating Profit Margin** has fluctuated slightly but has improved from 2022 to 2023, showing better operational efficiency.
- **Net Profit Margin** shows slight variation but has remained relatively stable, indicating consistent profitability after taxes.

Would you like further details on any specific ratio or additional analysis?

### Follow-Up Questions:
1. What could cause the increase in the cost of goods sold over the years?
2. How could ABC Ltd improve its gross profit margin in future years?
3. What factors influence the operating profit margin the most?
4. Why is the net profit margin important for long-term financial health?
5. How does the change in tax expense affect the net profit margin over time?

### Tip:
When analyzing financial ratios, always compare them with industry averages to get a more accurate picture of company performance.

Calculate the following ratios for ABC Ltd for the years 2021, 2022, and 2023: Cost of Goods Sold as a Percentage of Sales, Gross Profit Margin, Operating Profit Margin, and Net Profit Margin. Comment on the trends for each ratio.

Explore the detailed financial ratio calculations for ABC Ltd, covering Cost of Goods Sold as a percentage of sales, Gross Profit Margin, Operating Profit Margin, and Net Profit Margin for the years 2021, 2022, and 2023. Understand the trends and implications of these financial metrics.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation