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Ratio Analysis for Raffas Bargain SportsGear, Rodgers Sports and Andrews Luxury Sports Emporium

View Solution # 27293

Price: $8.00

In the town of Wimbledonia there are three sports/leisure stores:
o Raffas Bargain SportsGear – a new low cost megastore selling a vast range of sports goods opened in late 2007.
o Rodgers Sports - an old established family run sports shop. This business has been severely hit by the recent arrival of Raffas.
o Andrews Luxury Sports Emporium - an up market sports shop – concentrating on high value sports e.g. horse riding, polo, lacrosse etc. – opened in 1997.

You have been told some key accounting ratios for the 3 stores – but unfortunately you do not know which store they relate to. These are the accounting ratios for the year ended 31 December 2009:

Store 1 2 3
Gross Profit Margin 30% 48% 19%
Net Profit Margin 4% 18% 6%
Return on Capital Employed 6% 13% 12%

Required
a. Briefly explain what the three ratios are; how they are calculated and why they are of importance to accounts users
b. Using your judgement – decide which ratios relate to which store and explain your reasoning.
Word limit - 1,000

Solution

The solution provides a detailed response for both questions. Firstly, each of the three rations, i.e. Gross Profit Margin, Net Profit Margin, and Return on Capital Employed are explained. Following this, based on calculations, each of the ratios are assigned to the respective stores. A detailed rationale has also been included.

No. of Words: 1,074 Help

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Price: $8.00

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