IB Business Management SL 3.5 Profitability and Liquidity Ratio Analysis Questions

Tipin (TI)

Tipin (TI) manufactures shirts using a batch production method.
Table 1 provides selected financial information for TI from:
- its profit and loss account for the year ending 31 May 2022
- its balance sheet at 31 December 2021.

At the end of 2021, TI's current ratio was 2.1. Its net profit margin declined from 14.8 % in 2021 to 10.0 % in 2022.

Trestle Z PLC (TZ)
Trestle Z PLC (TZ), a specialist coffee roaster, operates in the secondary sector. Its instant coffees are sold worldwide in a very competitive market. Consumers in this market have strong brand loyalty.
Although demand for instant coffee has not grown in many richer countries, it is growing in emerging markets and Eastern Europe. TZ has no control over the price of its raw material (coffee beans),

as prices are determined by world markets.

The directors of TZ want to increase the company's gross profit margin and net profit margin and grow the business. Table 5 gives selected financial information for the company for 2019 and 2020.

TZ's directors are considering two options.
Option 1: Take over a specialist coffee business
TZ is considering taking over Green Glass (GG) for $\$ 600$ million. GG owns 1000 cafés in the USA that sell speciality products at high prices. It also has an e-commerce subscription service that sells its coffee beans to consumers. In 2020, GG's net profits were $\$ 120$ million. GG has a well-organized distribution channel and strong brand awareness in the USA. TZ would operate the cafés using the GG branding.
Option 2: Launch its own chain of cafés
These cafés would compete against established chains of cafés serving the mass market. Initially, the launch would be in three EU countries but would then, if successful, be launched across the world. TZ would produce a range of freshly ground coffees for sale in the cafés.

Explain two factors that might prevent T Z from increasing its gross profit margin.

LuxEclairage (LE)


LuxEclairage (LE) was founded by Maurice Dahman, an Electrical Engineer from Algeria. He has a degree in electrical engineering and is fluent in French. In 2007, after 12 years working for a large lighting business in Luxembourg, Maurice established LE. His business produces energy-efficient parts for various indoor and outdoor lighting.
LE has a unique selling point (USP): the lowest price in the market. Although most sales are in Europe, all production is in Algeria, where costs are much lower. As a result, growth in sales revenue has been rapid and significant, and LE has gained market share each year.
Selected financial information for LE (all figures in €m):

With the rapid growth in sales revenue since it was first established, LE has experienced some diseconomies of scale, especially in the administration of the business. Production occurs in 12 small factories located around the city of Algiers, rather than in one large factory. Coordination between factories and the administrative offices is, therefore, complicated, and the internet is sometimes unavailable. Whereas French is the language used by managers and customers of LE, the workers generally speak only basic French and prefer to speak Arabic. In addition, patterns of non-verbal communication differ widely between Europe and Algeria.