The table shows financial data for two businesses. Annual sales ($) | Business A | Business B -------------------|------------|------------ Annual sales ($) | 1 600 000 | 2 800 000 Net profit ($) | 400 000 | 400 000 Accounts receivable | 200 000 | 250 000 Net profit ratio: net profit ÷ sales Accounts receivable turnover ratio: sales ÷ accounts receivable Which of the following statements is correct? (A) Business A is more profitable but less efficient than Business B. (B) Business B is more profitable but less efficient than Business A. (C) Business A is more profitable and more efficient than Business B. (D) Business B is more profitable and more efficient than Business A.

SSCE HSC Business Studies Processes of financial management: The table shows financial data f

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 ($) | Business A | Business B -------------------|------------|------------ Annual sales ($) | 1... 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

Net Profit Ratio for Business A

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Answer

The net profit ratio for Business A can be calculated as follows:

ext{Net Profit Ratio} = rac{ ext{Net Profit}}{ ext{Annual Sales}} = rac{400,000}{1,600,000} = 0.25 ext{ or } 25\%

Step 2

Net Profit Ratio for Business B

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Answer

The net profit ratio for Business B can similarly be calculated:

ext{Net Profit Ratio} = rac{400,000}{2,800,000} = 0.1429 ext{ or } 14.29\%

Step 3

Accounts Receivable Turnover Ratio for Business A

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Answer

For Business A, the accounts receivable turnover ratio is:

ext{Accounts Receivable Turnover Ratio} = rac{ ext{Sales}}{ ext{Accounts Receivable}} = rac{1,600,000}{200,000} = 8

Step 4

Accounts Receivable Turnover Ratio for Business B

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Answer

For Business B, this ratio is:

ext{Accounts Receivable Turnover Ratio} = rac{2,800,000}{250,000} = 11.2

Step 5

Conclusion

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Answer

From the calculations:

Business A has a higher net profit ratio (25%) compared to Business B (14.29%).
Business A has a lower accounts receivable turnover ratio (8) compared to Business B (11.2).

Thus, the correct statement is (A): Business A is more profitable but less efficient than Business B.

The table shows financial data for two businesses - HSC - SSCE Business Studies - Question 19 - 2016 - Paper 1

Worked Solution & Example Answer:The table shows financial data for two businesses - HSC - SSCE Business Studies - Question 19 - 2016 - Paper 1

Net Profit Ratio for Business A

Net Profit Ratio for Business B

Accounts Receivable Turnover Ratio for Business A

Accounts Receivable Turnover Ratio for Business B

Conclusion

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