IB Business Management SL 3.5 Profitability and liquidity ratio analysis Question Bank

1. 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.
L E 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 L E has gained market share each year.
Selected financial information for L E (all figures in €m):

With the rapid growth in sales revenue since it was first established, L E 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 L E, 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.

1. MiniVS (MV)
MiniVS (MV) imports light bulbs, which it sells business to business (B2B) to customers in the UK. In 2020, MV ran into cash-flow problems and had to use debt factoring.
M V has now solved its cash-flow problems. It operates a cost-plus (mark-up) pricing strategy and places a 100 % mark-up on the light bulbs that it purchases from suppliers.
The forecasted opening cash balance for January 2021 is £ 20000.

The finance director is concerned that the online market for light bulbs in the UK is becoming increasingly price competitive. She believes that if suppliers raise prices in the second half of 2021 , M V will have to abandon its cost-plus (mark-up) pricing strategy to be price competitive.

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, Tl's current ratio was 2.1. Its net profit margin declined from 14.8 % in 2021 to 10.0 \% in 2022.

1. Suparman Fish ( SF )
Gepa Suparman owns and operates four fishing boats in Indonesia. There is a growing demand for canned (tinned) food, including cans of fish. Gepa wants to enter the secondary sector by opening a small factory producing cans of fish.
Gepa's business will be called Suparman Fish ( S F ) and will be a private limited company. Gepa will own all of the shares. The factory will be located in a village three miles from the harbour. Because unemployment is high in the village, Gepa should easily find workers for the new factory. In addition to the manager's salary, workers' wages, and the cost of fish, supplies, and cans, S F will have the semi-variable cost of electricity.
Gepa has prepared a four-month cash-flow forecast based on the following information:
- opening balance month 1: $ 15000.
- month 1 : sales revenue of $ 1000, increasing by 20 % per month.
- manager's salary: $ 300 per month.
- workers' wages: $ 175 per worker per month.

- variable costs (fish, supplies, and cans) are equal to 40 % of sales revenue.
- semi-variable cost of electricity: fixed cost of $ 100 per month, plus a variable cost of $ 0.10 per kilowatt hour (kwh). Month 1 usage: 100 kwh , increasing by 10 % each month.

Although S F would create several jobs in the village, many residents are not happy about the new factory. The new factory would use chemicals, which cause pollution. Residents are concerned about the unpleasant smells from the factory. A representative from the local employment office is concerned whether Gepa's factory will provide a safe working environment.

1. Nzuri Kio (NK)
Nzuri Kio ( N K ) is a company that manufactures products made of glass, such as windows and table tops. NK sells its products in its own regional trading bloc, a group of eight countries that all have developing economies. NK is located in a poor country where the national government is not very efficient and public sector services are limited. The country's infrastructure needs investment, and quality of life is low. At school, students are in very big classes, with over sixty students in each; few students complete middle school.
The manager of N K is considering purchasing new, high-quality equipment for its factory: glass-making machines from Carrucci SpA. Carrucci SpA is an Italian company that makes the best glass manufacturing equipment in the world. Its computerized equipment is innovative and very efficient. Glass can be cut perfectly, with almost no waste. However, the equipment is expensive and requires highly skilled workers. The new equipment would lead to a better product, which should result in higher sales and a higher gross profit margin.
The total cost of the equipment is $ 800000. NK is considering two different sources of finance:
- (Option A) a seven-year $720000 bank loan.
- (Option B) selling $ 800000 in shares.
Financial information for N K, for the year ending 31 May 2014:

1. Rio Mobiliário (RM)
Rio Mobiliário (RM) is a Brazilian furniture manufacturer. It generates sales in South America, North America and Europe. It has successfully outsourced production and distribution facilities to North America.
Selected financial data for the year ended and as of 31 December 2015. All figures in millions of Brazilian reals.

KPJ

KPJ operates a cinema in a small town. It uses a price discrimination strategy for cinema tickets.