Accounting – 6.2 Interpretation of accounting ratios | e-Consult
6.2 Interpretation of accounting ratios (1 questions)
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Comparison of Results for Green Grocers (2021 vs. 2022)
Statement of Comparison
| Item | 2021 (£) | 2022 (£) | Change (£) |
| Sales | 60,000 | 75,000 | 15,000 |
| Cost of Goods Sold | 30,000 | 37,500 | 7,500 |
| Other Income | 2,000 | 2,500 | 500 |
| Other Expenses | 8,000 | 9,500 | 1,500 |
| Profit Before Tax | 22,000 | 25,000 | 3,000 |
Analysis:
- Sales: Sales increased by £15,000 (25%) from 2021 to 2022. This is a significant positive change.
- Cost of Goods Sold: Cost of Goods Sold increased by £7,500. This is likely due to the increase in sales, but it's important to consider the cost of purchasing goods.
- Other Income: Other income increased by £500. The source of this income should be identified.
- Other Expenses: Other expenses increased by £1,500. The reasons for this increase should be investigated.
- Profit Before Tax: Profit before tax increased by £3,000, from £22,000 to £25,000. This is a positive result, indicating improved profitability.
Conclusion: Green Grocers has experienced positive growth between 2021 and 2022, particularly in sales and profit. However, the increase in both the cost of goods sold and other expenses needs to be monitored to ensure profitability remains sustainable. Further investigation into the drivers of these changes is recommended.