Question

For each of the two companies, analyse their ability to successfully manage each of their categories of expenses in 2019 as compared to 2018. Use three profit margin ratios to support your answer and explain any change in the ability of each company to control costs. Note: ensure that you analyse in this question, not just describe the ratio values. (300 words)

	ZEN	CEN
Gross profit margin	2018: 51,429,000 - 22,882,000 / 51,429,000 x 100 = 55.50 2019: 55,037,000 - 23,715,000 / 55,037,000 x 100 = 56.91	2018: 1,974,685,866 - 1,362,927,633 / 1,974,685,866 x 100= 30.98 2019: 2,337,029,248 - 2,601,988,144 / 2,337,029,248 x 100 = -11.34
Operating profit margin	2018: 14,130,000 / 51,429,000 = 0.2747477104. 0.2747477104 x 100 = 27.47 2019: 12,533,000 / 55,037,000 = 0.2277195. 0.2277195 x 100 = 22.77	2018: 217,371,365 / 1,974,685,866 = 0.1100789. 0.1100789 x 100 = 11.01 2019: 288,663,735 / 2,337,029,248 = 0.12351738. 0.12351738 x 100 = 12.35
Net profit margin	2018: 8,473,000 / 51,429,000 = 0.1647514. 0.1647514 x 100 = 16.48 2019: 5,814,000 / 55,037,000 = 0.105638. 0.105638 x 100 = 10.56	2018: 102,724,020 / 1,974,685,866 = 0.05202 0.05202 x 100 = 5.20 2019: 155,801,949 / 2,337,029,248 = 0.06666 0.06666 x 100 = 6.67

Answer 1

ZEN

Gross profit is the amount a company earned after deducting the cost of goods that have been sold. In case of ZEN the has seen a jump in comparison with what it has earned in the year 2018. The overall sales has increased which is beneficial for the company. However the operational cost has increased for 2019, which shows that overall efficiency has decreased in 2019, which is not a good sign for overall profit. Apart from that the net profit margin has seen a steep dip of 6 percent, which shows that the company has been paying a huge amount of interest and taxes, this means management has taken loan and capital from various sources that has increased the overall interest and tax liability. It is important for a company to control its cost to register high profits that will build their goodwill in the market and give them upper edge over other companies.

CEN

In case of CEN , huge mismanagement can be seen because despite the increase in turnover the company was not able to register gross profit. The COGS has increased beyond the limit. This can be because of the mismanagement of stocks and inefficiency of the workers that resulted in huge increases in cost. Apart from that the operational cost has shown a dip that has resulted in an increase of operating profit margin. The reason behind the increase can be the efficiency of the administrative and selling department. Other cost cutting initiative by the company. Net profit of CEN has increased in comparison to 2018, this means the company has been using its resources and capital in a very efficient and effective manner. That has resulted in an increase in net profit margin and reduced the interest and tax expenses, saving more revenue for the company. The operating, interest and tax expense of the company in control , however the company was not able to control the cost related to production of goods. The management needs to think about the manufacturing process to reduce their overall cost and increase their profit.