Advanced Financial Accounting Coursework Essay Example | Topics and Well Written Essays - 3000 words

Advanced Financial Accounting Coursework - Essay Example financial statements of 2007, prepared under historical costs convention, in comparison with financial statements of 2006 also prepared under historical cost convention. On the other hand Part B covers the analysis of financial statements of 2007, prepared under current costs convention, in comparison with financial statements for the year 2007 prepared under historical costs convention. Gross profit margin is defined as the difference between net sales and cost of goods sold. Gross profit margin ratio shows the margin left after meeting manufacturing and/ or trading costs. It measures the efficiency of production as well as pricing. The company has performed exceptionally well in 2007 as its gross profit has risen from 39.8% in 2006 to 71.6% in 2007. It is true that turnover of the company has also increased from $38250000 to $42500000 but the real contributory factor for such rise in gross profit margin ratio is huge decline in cost of sales. Cost of sales has come down from 60.9% in 2006 to mere 28.4% in 2007. Such a fall in cost of sales reflects that either there are changes in products being dealt in by the company in 2007 as compared to those dealt in by the company in 2006; or there may be effects of some technological changes in production of products resulting in such a huge decline in costs of sales. Net profit margin measures the overall efficiency of production, administration, selling, financing, pricing, and tax management. Net profits have increased from 16.59% in 2006 to 40% in 2007. This increase in net profits is the result of huge increase in gross profit margin resulting from decline in cost of sales. There is also a marginal contrition from decline in distribution and administrative costs from 10.64% in 2006 to 9.6% in 2007. Jointly considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of Economica Plc and enable to identify the source of company’s business efficiency. As