Question

Refer to the income statement presented in exhibit 2.10 Südzucker AG.

Calculate gross profit margin (gross profit/sales), operating profit margin (operating profit/sales), and net profit margin (net earnings/sales) for this company. If a particular ratio cannot be calculated, explain why not.

EXHIBIT 2.10 SÜDZUCKER AG Statement of Comprehensive Income 1 March 2016 to 28 February 2017 € million Notes 2016/17 2015/16 Revenues (6) 6,476.0 6,387.0 Change in work in progress and finished goods inventories and internal costs capitalized 141.1 - 175.3 Other operating income (8) 98.7 122.5 Cost of materials (9) -4,323.2 -4,091.8 Personnel expenses (10) -841.7 -831.5 Depreciation (11) -285.9 -283.9 Other operating expenses (12) -859.1 -905.1

Answer 1

Südzucker AG

Ratio analysis :

		2016-17	2015-16
a	Gross profit *(Revenue - cost of materials)	(6,476-4,323.2) = $ 2,152.8	(6,387-4,091.8) = $ 2,295.2
b	Operating profit	$ 440.9	$ 276.9
c	Net Earnings	$ 312.1	$ 180.9
A	Gross profit ratio (Gross profit/ Revenue)	2,152.8/6,476 = 33.24%	2,295.2/6,387 = 35.9%
B	Operating profit ratio (Operating profit/ Revenue)	440.9/6,476 = 6.81%	276.9/6,387 = 4.34%
C	Net profit ratio (Net earnings/ Revenue)	312.1/6,476 = 4.82%	180.9/6,387 = 2.83%

Gross profit doesn't consider internal costs capitalized, but consider the change in finished goods inventory, but in instant case both are shown without any break up hence we are not consider change in inventory. It may leads to inappropriate calculation of gross profit and gross profit ratio.