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 ABC Ltd (2022 vs. 2023)
The following table summarises the key financial figures for ABC Ltd for the years ended 31 December 2022 and 31 December 2023:
| Financial Item | 2022 (£) | 2023 (£) |
| Revenue | 80,000 | 95,000 |
| Gross Profit | 32,000 | 40,000 |
| Net Profit | 12,750 | 16,500 |
Analysis:
- Revenue: Revenue increased from £80,000 to £95,000, representing a growth of £15,000 or 18.75%. This indicates a positive trend in sales.
- Gross Profit: Gross profit increased from £32,000 to £40,000, an increase of £8,000. This is likely due to the increase in revenue and potentially improved efficiency in production or purchasing.
- Net Profit: Net profit increased from £12,750 to £16,500, an increase of £3,750. This is a positive outcome, reflecting improved profitability.
- Operating Expenses: Operating expenses increased from £15,000 to £18,000. This increase needs further investigation to determine the reasons. It could be due to increased marketing costs, higher salaries, or other factors.
Conclusion: Overall, ABC Ltd has shown positive financial performance between 2022 and 2023. Revenue and profit have increased. However, the rise in operating expenses should be monitored to ensure profitability remains strong. Further investigation into the reasons for the increase in operating expenses is recommended.