Advanced Profitability - Activity 5 - Carphone Warehouse

Here are the sales and profit data for the Carphone Warehouse, mobile communications company, for the latest two years. What we want to know is whether the Carphone Warehouse is a profitable company ... and how do we know?

Following the Profit and Loss Account for the Carphone Warehouse, below is the profitability section of our ratio table and we have included the name of the ratio, the formula and the workings for the year ended 31 March 2001.

Carphone Warehouse
Consolidated Profit and Loss Account	31 March 2001	25 March 2000
for the year ended	£'000	£'000
Turnover	1,110,678	697,720
Cost of sales	-830,126	-505,738
Gross profit	280,552	191,982
Operating expenses	-176,960	-129,359
Operating profit	66,016	41,389
Other costs/income	-21,004	-16,089
Profit before interest and taxation	45,012	25,300
Net interest receivable (payable)	2,385	-196
Profit on ordinary activities before taxation	47,397	25,104
Tax on profit on ordinary activities	-8,675	-8,831
Profit on ordinary activities after taxation	38,722	16,273
Equity minority interests	-563	54
Profit for the financial period	38,159	16,327
Dividends	0	0
Retained profit	38,159	16,327

Here is a list of the profitability ratios for the year ended 31 March 2001 for the Carphone Warehouse. Read down this page and make sure you can follow where all the figures come from as we work through these ratios... and make sure that you agree with the answers you see here... then you should repeat the calculations for the year ended 25 March 2000.

Note: we don't have any administration and overhead costs so we can't calculate those ratios; but we do have interest and operating costs so we can report those instead.

Here are the figures for the year ended 31 March 2001, put into ratio format, that you should have extracted from the Profit and Loss Accounts and that you will then have used to calculate the ratio values... check that you agree with them and then repeat what you see there for the year ended 25 March 2000.

Carphone Warehouse	For the year ended
Basic Ratios	31 Mar 01	25 Mar 00
Gross profit margin	280,552/1,110,678 * 100 =
Operating profit margin	660,16/1,110,678 * 100 =
Net profit margin	45,012/1,110,678 * 100 =
Retained profit margin	38,159/1,110,678 * 100 =
Profit mark up	280,552/830,126 * 100 =
Additional Ratios
Profit before interest and taxation %	45,012/11,10,678 * 100 =
Profit before taxation %	47,397/11,10,678 * 100 =
Profit for the year %	38,159/11,10,678 * 100 =
Operating costs %	176,960/1,110,678 * 100 =
Interest costs %	2,385/1,110,678 * 100 =

Here are the ratio answers for the year ended 31 March 2001

Carphone Warehouse	For the year ended
Basic Ratios	31 Mar 01	25 Mar 00
Gross profit margin	25.26%
Operating profit margin	5.94%
Net profit margin	4.05%
Retained profit margin	3.44%
Gross profit mark-up	33.80%
Additional Ratios
Profit before interest and taxation %	4.05%
Profit before taxation %	4.27%
Profit for the year %	3.44%
Operating costs %	15.93%
Interest costs %	0.21%

Did you get this?

Now we need to interpret what we've found: what do all of these ratio results mean? In fact, these results are remarkably consistent from year to year. Follow through our analysis of the Carphone Warehouse as it unfolds in this section of this site and keep referring back to these profitability ratios to see how they fit in with our overall view of this business.

You can try some advanced profitability questions or move on to the Rate of Return section.

Source:
http://www.bized.co.uk/