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Using the data in Extracts G and H calculate appropriate accounting ratios for The Gym Group and, using their non-financial information, evaluate these two options - Edexcel - A-Level Business - Question 2 - 2017 - Paper 3
Question 2
Using the data in Extracts G and H calculate appropriate accounting ratios for The Gym Group and, using their non-financial information, evaluate these two options. ... show full transcript
Worked Solution & Example Answer:Using the data in Extracts G and H calculate appropriate accounting ratios for The Gym Group and, using their non-financial information, evaluate these two options - Edexcel - A-Level Business - Question 2 - 2017 - Paper 3
Step 1
Calculate Profitability Ratios
Answer
To assess profitability, we will calculate the Gross Profit Margin (GPM) and Operating Profit Margin (OPM) for both 2015 and 2014.
Gross Profit Margin:
2015 GPM = ( \frac{60,011}{61,084} \times 100 = 98.7% )
2014 GPM = ( \frac{44,440}{45,480} \times 100 = 97.9% )
Change: ( 0.8% \text{ improvement} )
Operating Profit Margin:
2015 OPM = ( \frac{-2,701}{61,084} \times 100 = -4.42% )
2014 OPM = ( \frac{2,335}{45,480} \times 100 = 5.14% )
Change: ( -9.56% \text{ decline} )
Step 2
Step 3
Step 4
Assessment of Non-Financial Information
Answer
In terms of non-financial factors, The Gym Group has a strong market presence with low-cost gym offerings. Its benefits include an established brand and a substantial growth trajectory. LA Fitness, on the other hand, operates at a premium segment but may lack the growth potential that Pure Gym desires.
The Gym Group targets a youthful demographic that seeks affordability, while LA Fitness is positioned for higher-income individuals. Thus, Pure Gym should consider its market strategy carefully.
Step 5
Recommendation
Answer
Based on the evaluation of financial and non-financial information, it would be better for Pure Gym to acquire The Gym Group. This acquisition aligns with their growth target of expanding into low-cost alternatives and appeals to a broader customer base seeking value for money.