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Describe the steps that BT could take to improve its profitability and liquidity ratios. - Scottish Highers Business Management - Question d - 2018
Question d
Describe the steps that BT could take to improve its profitability and liquidity ratios.
Worked Solution & Example Answer:Describe the steps that BT could take to improve its profitability and liquidity ratios. - Scottish Highers Business Management - Question d - 2018
Step 1
Gross Profit Ratio
Answer
One way BT can improve its gross profit ratio is by increasing the selling price of its products. This adjustment can boost revenue without increasing costs if the demand remains stable. Another option is to decrease the cost of sales; BT could achieve this through negotiating better terms with suppliers or finding a cheaper supplier. Additionally, examining its product offering to eliminate lower-margin items could enhance the overall profitability.
Step 2
Profit for the Year Ratio
Answer
To enhance the profit for the year ratio, BT could aim to increase its gross profit figure. They can do this by focusing on higher-margin products and possibly diversifying their offerings. Additionally, decreasing operating expenses is crucial; one method is to reduce costs associated with premises by relocating to sites with lower rent, which would significantly impact profitability.
Step 3
Current Ratio
Answer
For improving the current ratio, BT should look at increasing its current assets. This could involve enhancing its sales through discounts or advertising, leading to higher cash inflows. Furthermore, BT could also reduce its current liabilities by paying off debts or renegotiating payment terms with suppliers to improve liquidity.