Dr Mo started his own medical practice at the end of 2020. At the end of...

 

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Dr Mo started his own medical practice at the end of 2020. At the end of his second year in business he thinks it prudent to compare his 2021 and 2022 financial results to reassess if it's better for him to work in the private sector or return to public service. You are his financial manager, and he provides you with the following financial information: Ratios at the end of December 2021 Gross profit margin 35% Net profit margin 11% Return on capital employed (ROCE) 13% 1.4:1 Current ratio As at 31 December 2022 Revenue Cost of sales Total running costs. Current assets Current liabilities Total capital employed R 5,000,000 2,880,000 1,536,000 660,000 600,000 2,560,000 Required: a. Showing the formulae, calculate the following ratios for the year 2022: a) Gross profit margin; b) Net profit margin; c) Return on capital employed (ROCE); and d) Current ratio. (16) b. Tabulate the 2021 ratios and your calculated 2022 ratios. Comment on the changes in the ratios from one year to the next. In your assessment, provide two plausible reasons that could explain the financial trends observed. (8) c. Explain to Dr Mo, an exceptional medical doctor but sadly lacking in financial acumen, give him five advantages and five disadvantages of using ratios to analyse and interpret performance. Round off numbers to two decimal places. (10) Dr Mo started his own medical practice at the end of 2020. At the end of his second year in business he thinks it prudent to compare his 2021 and 2022 financial results to reassess if it's better for him to work in the private sector or return to public service. You are his financial manager, and he provides you with the following financial information: Ratios at the end of December 2021 Gross profit margin 35% Net profit margin 11% Return on capital employed (ROCE) 13% 1.4:1 Current ratio As at 31 December 2022 Revenue Cost of sales Total running costs. Current assets Current liabilities Total capital employed R 5,000,000 2,880,000 1,536,000 660,000 600,000 2,560,000 Required: a. Showing the formulae, calculate the following ratios for the year 2022: a) Gross profit margin; b) Net profit margin; c) Return on capital employed (ROCE); and d) Current ratio. (16) b. Tabulate the 2021 ratios and your calculated 2022 ratios. Comment on the changes in the ratios from one year to the next. In your assessment, provide two plausible reasons that could explain the financial trends observed. (8) c. Explain to Dr Mo, an exceptional medical doctor but sadly lacking in financial acumen, give him five advantages and five disadvantages of using ratios to analyse and interpret performance. Round off numbers to two decimal places. (10)

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A Calculating the ratios foe the year 2022 AGross profit margin Gross profit margin RevenueCost of s... View the full answer