iii. Discuss FOUR (4) strategies that Phoenix Textile can consider to improve itsprofitability. NO RATIO12345Financial statements of Phoenix Textile for the years 2020FORMULAEANSWERRM175813/RM 351006CurrentratioAcid-TestratioGross profitmarginNet profitmarginInventoryturnoverratioCurrent asset/Current liabilities(Current asset-inventory) /current liabilities(Gross profit/netsales) x 100(Net profit/netsales) x 100Cos of goods /average stockAccount(Accountreceivable receivable/sales)collection x 100period= 5:1(RM175813-RM161213)/RM35100= 0.42: 1(RM72043/RM125780) x100 %= 57.28%(RM15043/RM125780)X 100%5%Average stock=(RM158750+RM161213)/2=RM159981.50Inventory turnover ratioRM53737/RM15998.50= 3.36=3 Times(RM12300/RM125780) x365days=35.70=36 daysCOMMENTSThe current ration of thecompany shows it has 5times more current assetcompared to its currentliability. Whereas RM5current asset, to pay RM1current liability. Therefore,the company is able to payits short-term debt.The firm has RM0.42liquid asset to cover RM1current liability. Thereforeits liquid asset is unable tocover its current liabilitiesThe 57.28% shows theprofit left after subtractingcost of goods sold (COGS)from saleThe profit margin for thecompany is 11.96% whichmeans the company is ableto generate RM0.12 netprofit from its sales duringthe current accounting yearThe company replaced itsstock 3 times during thecurrent financial year.36 days is the averagenumbers of days thatPhoenix Textile took tosell the average inventoryduring the year.

Every business wants to make the business profitable but why the profitability will be achieved is…

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Accounting

Discuss FOUR (4) strategies that Phoenix Textile can consider to improve its profitability.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

iii. Discuss FOUR (4) strategies that Phoenix Textile can consider to improve its
profitability.

NO RATIO
1
2
3
4
5
Financial statements of Phoenix Textile for the years 2020
FORMULAE
ANSWER
RM175813/
RM 35100
6
Current
ratio
Acid-Test
ratio
Gross profit
margin
Net profit
margin
Inventory
turnover
ratio
Current asset/
Current liabilities
(Current asset-
inventory) /
current liabilities
(Gross profit/net
sales) x 100
(Net profit/net
sales) x 100
Cos of goods /
average stock
Account
(Account
receivable receivable/sales)
collection x 100
period
= 5:1
(RM175813-RM161213)/
RM35100
= 0.42: 1
(RM72043/RM125780) x
100 %
= 57.28%
(RM15043/RM125780)
X 100%
5%
Average stock
=(RM158750+RM161213)/2
=RM159981.50
Inventory turnover ratio
RM53737/RM15998.50
= 3.36
=3 Times
(RM12300/RM125780) x
365days
=35.70
=36 days
COMMENTS
The current ration of the
company shows it has 5
times more current asset
compared to its current
liability. Whereas RM5
current asset, to pay RM1
current liability. Therefore,
the company is able to pay
its short-term debt.
The firm has RM0.42
liquid asset to cover RM1
current liability. Therefore
its liquid asset is unable to
cover its current liabilities
The 57.28% shows the
profit left after subtracting
cost of goods sold (COGS)
from sale
The profit margin for the
company is 11.96% which
means the company is able
to generate RM0.12 net
profit from its sales during
the current accounting year
The company replaced its
stock 3 times during the
current financial year.
36 days is the average
numbers of days that
Phoenix Textile took to
sell the average inventory
during the year.

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