Please read the following scenario and answer the questions that follow: You are an analyst in the food and beverage industry. In this industry, there are various sizes of businesses - from small to significant global companies. In order to conduct an effective comparison of the different businesses, you have chosen to use a 'common size' analysis. Common size analysis converts all financial statement variables to percentages, thereby allowing the effectiveness and efficiency of the individual businesses to be compared. What follows is the Statement of Profit or Loss and Other Comprehensive Income of two of the businesses, Fruity Rush Limited and Sparkling Thirst (Pty) Limited, respectively. Statement of profit or loss and other comprehensive income for the period ending 30 June 2021 R'000 Fruity Rush Sparkling Thirst Sales 86,000 28,000 Cost of sales 40,000 14,000 Gross profit Operating expenses Selling expenses 46,000 14,000 30,000 6,000 4,000 3,000 Depreciation 7,000 2,000 Operating profit 5,000 3,000 Required: 2.1 Prepare a common size analysis of these companies' respective Statements of Profit or Loss and Other Comprehensive Income. Round off each figure to two decimal places. 2.2 Comment on the outcome of the common size analysis.
Please read the following scenario and answer the questions that follow: You are an analyst in the food and beverage industry. In this industry, there are various sizes of businesses - from small to significant global companies. In order to conduct an effective comparison of the different businesses, you have chosen to use a 'common size' analysis. Common size analysis converts all financial statement variables to percentages, thereby allowing the effectiveness and efficiency of the individual businesses to be compared. What follows is the Statement of Profit or Loss and Other Comprehensive Income of two of the businesses, Fruity Rush Limited and Sparkling Thirst (Pty) Limited, respectively. Statement of profit or loss and other comprehensive income for the period ending 30 June 2021 R'000 Fruity Rush Sparkling Thirst Sales 86,000 28,000 Cost of sales 40,000 14,000 Gross profit Operating expenses Selling expenses 46,000 14,000 30,000 6,000 4,000 3,000 Depreciation 7,000 2,000 Operating profit 5,000 3,000 Required: 2.1 Prepare a common size analysis of these companies' respective Statements of Profit or Loss and Other Comprehensive Income. Round off each figure to two decimal places. 2.2 Comment on the outcome of the common size analysis.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 2
Please read the following scenario and answer the questions that follow:
You are an analyst in the food and beverage industry. In this industry, there are
various sizes of businesses - from small to significant global companies. In order
to conduct an effective comparison of the different businesses, you have chosen
to use a 'common size' analysis. Common size analysis converts all financial
statement variables to percentages, thereby allowing the effectiveness and
efficiency of the individual businesses to be compared.
What follows is the Statement of Profit or Loss and Other Comprehensive Income
of two of the businesses, Fruity Rush Limited and Sparkling Thirst (Pty) Limited,
respectively.
Statement of profit or loss and other comprehensive income for the period ending
30 June 2021
R'000
Fruity Rush
Sparkling Thirst
Sales
86,000
28,000
Cost of sales
40,000
14,000
Gross profit
46,000
14,000
Operating expenses
30,000
6,000
Selling expenses
4,000
3,000
Depreciation
7,000
2,000
Operating profit
5,000
3,000
Required:
2.1
Prepare a
common size analysis of these companies' respective
Statements of Profit or Loss and Other Comprehensive Income. Round
off each figure to two decimal places.
2.2
Comment on the outcome of the common size analysis.
Hint for student: discuss the relevant percentages of one business relative to the
other, and conclude on why or how the one is better or less effective than the
other.
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