ACCA FR · Guided practice (Show me how)
Chapter 20: Financial performance (profitability)
Profitability ratios - margins, interest cover and one-off items
A Co and B Co both sell children's clothes. Extracts for the year ended 31 December 20X0:
- A Co makes and sells premium branded children's clothes, online and in its own international chain of branded stores.
- B Co sells mid-market children's clothes in department stores. It buys directly from the manufacturer and makes no international sales, but plans to expand abroad.
- After an impairment review, A Co recognised an impairment of $10 million in the year, included in operating expenses.
Neither company has investment income, so operating profit equals PBFIT. Ratios are percentages to one decimal place, and times to one decimal place.
(a) Margins
Calculate A Co's and B Co's gross and operating profit margins for 20X0 and A Co's operating margin excluding the impairment.
(b) Interest cover and the comment
Calculate A Co's and B Co's interest cover for 20X0 and A Co's interest cover excluding the impairment, and identify the conclusion supported by the figures.
Opening this exercise…