Banbury Chocolates Ltd manufactures premium chocolates and confectionery. In 2024, the company's sales revenue was $2.4 million, and with the cost of sales amounting to just $960,000, the company achieved a healthy gross profit margin.
Define the term 'gross profit margin'.
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Cork Fine Foods Ltd produces artisanal cheeses and dairy products. Last year they achieved a profit margin of 15%.
State two ways to improve the profit margin.
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Peak Performance Bikes Ltd manufactures carbon fibre bicycle frames. The company had capital employed of $4.5 million and profit before interest and tax of $900,000 in 2024. It wants to calculate the return on capital employed.
Define the term 'return on capital employed'.
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Munich Precision Engineering GmbH produces components for the aerospace industry. In 2024, their return on capital employed was 18%.
State two ways to improve return on capital employed (RoCE).
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Oslo Furnishings AS manufactures office furniture. The company's current ratio was 2:1 in 2024.
Define the term 'current ratio'.
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Vilnius Software Solutions provides IT services to businesses. The company's accountant has identified potential liquidity issues.
State two ways to improve liquidity.
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Shanghai Tech Corporation's financial statements show declining liquidity ratios in 2024.
State two factors that could cause liquidity problems.
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Unilever, an international consumer goods company, tracks its liquidity through financial ratios. In 2024, its current ratio worsened, partly as a result of increased stock levels.
Describe one way a business could improve its current ratio.
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Mountain Adventure Gear is a small business that sells outdoor equipment such as hiking boots, tents, and climbing gear. The company’s sales have grown steadily due to increased interest in outdoor activities. However, its financial statements reveal that while revenue has increased, its gross profit margin has decreased.
To address this, the company’s management is exploring ways to reduce direct costs, such as negotiating with suppliers or finding cheaper raw materials. They are also reviewing their pricing strategy, considering whether raising prices for premium products could help offset the rising cost of goods sold.
Additionally, Mountain Adventure Gear is evaluating its return on capital employed (ROCE) to determine whether its recent investment in a new warehouse is generating sufficient returns.
Analyse two advantages and one disadvantage of increasing prices for premium products at Mountain Adventure Gear.
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Mountain Adventure Gear is a small business that sells outdoor equipment such as hiking boots, tents, and climbing gear. The company’s sales have grown steadily due to increased interest in outdoor activities. However, its financial statements reveal that while revenue has increased, its gross profit margin has decreased.
To address this, the company’s management is exploring ways to reduce direct costs, such as negotiating with suppliers or finding cheaper raw materials. They are also reviewing their pricing strategy, considering whether raising prices for premium products could help offset the rising cost of goods sold.
Additionally, Mountain Adventure Gear is evaluating its return on capital employed (ROCE) to determine whether its recent investment in a new warehouse is generating sufficient returns.
Describe two ways Mountain Adventure Gear can evaluate the success of its recent investment in a new warehouse.
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Artisan Furniture is a business that produces handmade wooden furniture, including tables, chairs, and cabinets. While the company has maintained steady sales, it has faced challenges with rising material costs and delivery delays.
The company’s recent Statement of Profit or Loss shows that its gross profit margin has declined, although operating expenses have remained constant. Artisan Furniture is considering ways to improve profitability, such as sourcing materials from local suppliers to reduce costs and renegotiating trade credit terms to improve liquidity.
Additionally, management is using liquidity ratios to assess the company’s ability to meet short-term obligations while maintaining adequate cash flow for daily operations.
Explain one advantage and one disadvantage of Artisan Furniture improving its profitability by sourcing materials from local suppliers.
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Artisan Furniture is a business that produces handmade wooden furniture, including tables, chairs, and cabinets. While the company has maintained steady sales, it has faced challenges with rising material costs and delivery delays.
The company’s recent Statement of Profit or Loss shows that its gross profit margin has declined, although operating expenses have remained constant. Artisan Furniture is considering ways to improve profitability, such as sourcing materials from local suppliers to reduce costs and renegotiating trade credit terms to improve liquidity.
Additionally, management is using liquidity ratios to assess the company’s ability to meet short-term obligations while maintaining adequate cash flow for daily operations.
Describe two factors Artisan Furniture should consider when renegotiating trade credit terms to improve liquidity.
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Zenith Publishing specialises in producing e-books and printed novels for a niche audience. The company has seen a steady increase in revenue over the past year but is facing profitability challenges due to rising overhead costs, such as higher rents and utility expenses for its office and warehouse.
Zenith’s management is considering reducing operating expenses by transitioning more operations online, such as offering digital-only publishing services. They are also reviewing their gross profit margin and return on capital employed (ROCE) to determine if their current investment in print publishing remains financially viable.
Additionally, Zenith’s recent liquidity ratios have revealed a slight decrease in the acid test ratio, prompting concerns about its ability to meet short-term financial obligations.
Explain one advantage and one disadvantage of transitioning to digital-only publishing for Zenith Publishing.
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Zenith Publishing specialises in producing e-books and printed novels for a niche audience. The company has seen a steady increase in revenue over the past year but is facing profitability challenges due to rising overhead costs, such as higher rents and utility expenses for its office and warehouse.
Zenith’s management is considering reducing operating expenses by transitioning more operations online, such as offering digital-only publishing services. They are also reviewing their gross profit margin and return on capital employed (ROCE) to determine if their current investment in print publishing remains financially viable.
Additionally, Zenith’s recent liquidity ratios have revealed a slight decrease in the acid test ratio, prompting concerns about its ability to meet short-term financial obligations.
Analyse two advantages and one disadvantage of using the acid test ratio to evaluate Zenith Publishing’s short-term financial health.
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