Question
Financial analysis
For each of
the two companies, analyse their ability to successfully manage each of their
categories of expenses in 2021 as compared to 2020. Use three profit margin
ratios to support your answer and explain any change in the
ability of each company to control costs. Note: ensure that you analyse in this
question, not just describe the ratio values
Expert Solution
Calculation of the gross profit margin and operating
margin;
In 2020, the total revenue for Tassal group was
593,389,000. Its total expense for that year was 430,593,000. The profit margin
ratio is calculated by total revenue-total expenses/ total revenue (How to Calculate a Profit Margin Ratio |
Indeed.com, 2021). Therefore, its gross profit ratio for the year was [593,389,000-430,593,000/593,389,000]
= 0.27 which is 27%. For the year 2021, its total revenue was 652,267,000. Its
total expense was 512,919,000. Therefore, its gross profit ratio will be given
by [652,267,000-512,919,000/652,267,000] = 0.21 which is 21%. Its operating
profit margin on the other hand will be given by Earnings before interest and
taxes [EBIT]/total revenue. Therefore, in 2020 the operating profit margin is
[124,065,000/593,389,000] = 0.21 which is 21% whereas in 2021 the operating profit
margin was [80,893,000/652,267,000] = 0.12 which is 12%.
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