1. PROFITABILITY RATIOS

2. COMPANY A
COMPANY B
NET PROFIT
10,000
20,000
CAPITAL INVESTED
50,000
100,000
SALES
500,000
200,000
COST OF SALES
110,000
45,000

3. CALCULATE THE FOLLOWING FOR EACH COMPANY:
The Gross Profit
The Net Profit Margin
The Gross Profit Margin
COMMENT ON YOUR FINDINGS!

4. Improving the GPM Raising sales (by increasing price)
Reducing the cost of goods sold (change suppliers)

5. Improving NPM Reducing expenses Reduce wages Energy efficiency
Reduce waste

6. ROCE
Shows the percentage return they are receiving on the money they have invested into their business Net profit x 100 capital invested This should be expressed as a percentage.

7. NOW GO BACK TO COMPANY A AND B AND CALCULATE THE ROCE FOR BOTH FIRMS
NOW GO BACK TO COMPANY A AND B AND CALCULATE THE ROCE FOR BOTH FIRMS. COMMENT ON YOUR FINDINGS!

8. IMPROVING ROCE
We need to improve the net profit generated without investing any more capital ie find ways to make capital work harder.