Using the data in Extracts G and H calculate appropriate accounting ratios for The Gym Group and, using other non-financial information, evaluate these two options - Edexcel - A-Level Business - Question 2 - 2017 - Paper 3

To calculate the Operating Profit Margin for 2015:

1. Operating Profit for 2015 = (Operating Profit / Revenue) × 100 = (-2,701 / 61,084) × 100 = -4.42%

2. Operating Profit for 2014 = (2,335 / 45,480) × 100 = 5.14%

3. Change in Operating Profit Margin = -4.42% - 5.14% = -9.56%

To calculate the Return on Capital Employed for 2015:

1. ROCE for 2015 = (Operating Profit / Capital Employed) × 100 = (-2,701 / 134,551) × 100 = -2.0%

2. ROCE for 2014 = (2,335 / 72,072) × 100 = 3.24%

3. Change in ROCE = -2.0% - 3.24% = -5.24%

To calculate the Current Ratio for 2015:

1. Current Ratio for 2015 = Current Assets / Current Liabilities = 8,636 / 25,546 = 0.34

2. Current Ratio for 2014 = 9,933 / 24,656 = 0.40

3. Change in Current Ratio = 0.34 - 0.40 = -0.06

Evaluating the two options:

1. The Gym Group's Position: The Gym Group has shown improvement in its GPM, indicating better control over cost of sales, although it has a negative operating profit margin and declining ROCE. This poses concern about operational efficiency.

2. LA Fitness: LA Fitness, alleged to be a premium provider, may offer potential for higher revenue. Acquiring LA Fitness could allow Pure Gym to streamline operations and attract higher-end clientele, but comes with potential debt issues.

3. Recommendation: Given the data, LA Fitness may be a better acquisition to enhance growth, despite the operational challenges faced by The Gym Group.