Profitability/Operating efficiency: Identify and explain which company has been more efficient in controlling its operating activities - NSC Accounting - Question 3 - 2022 - Paper 1

To determine which company has been more efficient in controlling its operating activities, we will analyze the operating expenses and profitability indicators for both Nigel Ltd and Vrede Ltd.

Financial Indicators

1. Operating Expenses on Sales: Nigel Ltd has operating expenses of 23.0%, which is lower than Vrede Ltd’s 23.9%. This indicates Nigel Ltd is managing its expenses more effectively. The difference of 0.9% points shows a preference in cost management.

2. Operating Profit on Sales: Nigel Ltd achieved an operating profit margin of 19.9%, surpassing Vrede Ltd’s 13.6% by 6.3% points. A higher operating profit margin implies that Nigel Ltd is more efficient in converting sales into actual profits, reflecting better control over its operating activities.

Conclusion

From the above analysis, Nigel Ltd demonstrates greater efficiency in controlling its operating activities due to lower operating expenses as a percentage of sales, and a significantly higher operating profit margin compared to Vrede Ltd.