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 find the Operating Profit Margin (OPM) for 2015: $OPM = \left( \frac{Operating \; Profit}{Revenue} \right) \times 100 = \left( \frac{-2 \; 701}{61 \; 084} \right) \times 100 \approx -4.4\%$

For 2014: $OPM = \left( \frac{2 \; 335}{45 \; 480} \right) \times 100 \approx 5.1\%$

The percentage change in OPM from 2014 to 2015 is: $\% \; change = \frac{OPM_{2015} - OPM_{2014}}{OPM_{2014}} \approx -2.3\% \; decline$

The Current Ratio for 2015 and 2014:

For 2015: $Current \; Ratio = \frac{Current \; Assets}{Current \; Liabilities} = \frac{8 \; 636}{25 \; 546} \approx 0.34$

For 2014: $Current \; Ratio = \frac{9 \; 933}{24 \; 656} \approx 0.40$

The percentage change in Current Ratio is: $\% \; change = \frac{0.34 - 0.40}{0.40} \approx -15\% \; decline$

The liquidity position of The Gym Group is concerning, as the Current Ratio has declined, indicating potential difficulties in meeting short-term liabilities. Profitability ratios show a decline in operating profit, which poses risks for sustained operations.

In contrast, LA Fitness appears to have a more robust operational structure with potential for premium pricing due to their established market presence. The merger with LA Fitness could provide Pure Gym with access to a higher income customer base, allowing differentiation through enhanced service offerings.

Given the profitability metrics and liquidity concerns associated with The Gym Group, it would have been more strategic for Pure Gym to acquire LA Fitness. This approach could stabilize Pure Gym's financial position while offering opportunities for upselling and enhancing overall brand reputation in the fitness market.