The table shows financial data for two businesses - HSC - SSCE Business Studies - Question 19 - 2016 - Paper 1
Question 19
The table shows financial data for two businesses.
Annual sales ($) | Business A | Business B
-------------------|------------|------------
1 600 000 | 2... show full transcript
Worked Solution & Example Answer:The table shows financial data for two businesses - HSC - SSCE Business Studies - Question 19 - 2016 - Paper 1
Step 1
Calculate Net Profit Ratio for Business A
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Answer
Net Profit Ratio (Business A) = Net Profit / Annual Sales = 400,000 / 1,600,000 = 0.25 or 25%.
Step 2
Calculate Net Profit Ratio for Business B
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Answer
Net Profit Ratio (Business B) = Net Profit / Annual Sales = 400,000 / 2,800,000 = 0.1429 or 14.29%.
Step 3
Calculate Accounts Receivable Turnover Ratio for Business A
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Answer
Accounts Receivable Turnover Ratio (Business A) = Annual Sales / Accounts Receivable = 1,600,000 / 200,000 = 8.
Step 4
Calculate Accounts Receivable Turnover Ratio for Business B
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Answer
Accounts Receivable Turnover Ratio (Business B) = Annual Sales / Accounts Receivable = 2,800,000 / 250,000 = 11.2.
Step 5
Determine Profitability and Efficiency Comparison
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Answer
Business A has a higher net profit ratio (25%) compared to Business B (14.29%), indicating it is more profitable. Business B has a higher accounts receivable turnover ratio (11.2) compared to Business A (8), indicating it is more efficient.
Step 6
Conclusion
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Answer
Based on the calculations, the correct statement is (A) Business A is more profitable but less efficient than Business B.
