【正确答案】Calculation of equivalent ratios (figures in $’000):

【正确答案】The most relevant comparison is the 2015 results (excluding the profit on disposal of the division) with the results of 2014(excluding the results of the division), otherwise like is not being compared with like. Profitability Although comparative sales have increased (excluding the effect of the sale of the division) by $4 million (36,000 – 32,000),equivalent to 12·5%, the gross profit margin has fallen considerably (from 37·5% in 2014 down to 33·3% in 2015) and this deterioration has been compounded by the sale of the division, which was the most profitable part of the business (which earned a gross profit margin of 44·4% (8/18)). The deterioration of the operating profit margin (from 18·8% in 2014 down to 10·3% in 2015) is largely due to poor gross profit margins, but operating expenses are proportionately higher (as a percentage of sales) in 2015 (23·0% compared to 18·8%) which has further reduced profitability. This is due to higher administrative expenses (as distribution costs have fallen), perhaps relating to the sale of the division. Yogi’s performance as measured by ROCE has deteriorated dramatically from 40·0% in 2014 (as adjusted) to only 21·8% in 2015. As the net asset turnover has remained broadly the same at 2·1 times (rounded), it is the fall in the operating profit which is responsible for the overall deterioration in performance. Whilst it is true that Yogi has sold the most profitable part of its business, this does not explain why the 2015 results have deteriorated so much (by definition the adjusted 2014 figures exclude the favourable results of the division). Consequently, Yogi’s management need to investigate why profit margins have fallen in 2015; it may be that customers of the sold division also bought (more profitable) goods from Yogi’s remaining business and they have taken their custom to the new owners of the division; or it may be related to external issues which are also being experienced by other companies such as an economic recession. A study of industry sector average ratios could reveal this. Other issues It is very questionable to have offered shareholders such a high dividend (half of the disposal proceeds) to persuade them to vote for the disposal. At $4 million (4,000 + 3,000 – 3,000, i.e. the movement on retained earnings or 10 million shares at 40 cents) the dividend represents double the profit for the year of $2 million (3,000 – 1,000) if the gain on the disposal is excluded. Another effect of the disposal is that Yogi appears to have used the other $4 million (after paying the dividend)from the disposal proceeds to pay down half of the 10% loan notes. This has reduced finance costs and interest cover;interestingly, however, as the finance cost at 10% is much lower than the 2015 ROCE of 21·8%, it will have had a detrimental effect on overall profit available to shareholders. Summary In retrospect, it may have been unwise for Yogi to sell the most profitable part of its business at what appears to be a very low price. It has coincided with a remarkable deterioration in profitability (not solely due to the sale) and the proceeds of the disposal have not been used to replace capacity or improve long-term prospects. By returning a substantial proportion of the sale proceeds to shareholders, it represents a downsizing of the business.