SIMPLE RATIOS

Ways to improve gross margin:

1. Profitability ratios: They tell/show how profitable the business  Looking for cheaper suppliers
has been during the current year compared with previous year /  Increase selling prices
similar business  Increase advertising and sales promotions
 Changing the proportions of different types of goods sold
1. Gross profit as a percentage of sale/ Gross profit margin: it
indicates how profitable sales were. 2. Net Profit as a Percentage of Sales/ Net Profit margin (Mark –
up): It indicates how well a business is able to control its operating
Formula: Gross Profit X 100 expenses.
Net Sales (turnover) 1
Formula: Net Profit X 100
The answer is expressed in percentage Net Sales (turnover) 1
2019 2020
Gross Profit X 100 Gross Profit X 100 The answer is expressed in percentage
Net Sales(turnover) 1 Net Sales(turnover) 1 2019 2020
Net Profit X 100 Net Profit X 100
20 000 X 100 25 000 X 100 Net Sales(turnover) 1 Net Sales(turnover) 1
80 000 1 120 000 1
25 500 X 100 25 500 X 100
= 25% = 20% 100 000 1 120 000 1
The higher the rate, the more profitable the business is, and the drop = 25.5% = 21.3%
shows that there is a problem possibly with management in certain
areas. The higher the rate, the more profitable the business is, especially if
the turnover was low. But if the rate of the margin is low, yet the
Reasons for a decrease in margin: turnover was high, it’s a sign that there is a problem.
- Poor recording of sales
- Goods not properly priced Ways to improve gross margin:
- Theft of cash or inventory  Reducing reduce bad debts/Controlling expenses /Credit
- Selling goods at discounts due to damages or being out of control policy
fashion  Increasing other income
- Buying from expensive suppliers
- Lack of advertising and sales promotions

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 - Reducing owner’s drawings
2. Liquidity ratios: They measure the ease and speed with which - Selling surplus non-current assets
assets can be turned into cash/ ability to meet current debts of a - Increase in the proportion of cash sales
business 2. Quick / Acid-Test Ratio – it compares assets which are in money
form/which converts into money quickly, with the liabilities due for
1. Current/ working Capital Ratios: it measures the ability of a payment in the near future
business to meet its liabilities when they fall due.
Formula;
Formula: Current Assets Current Assets – Inventory
Current Liabilities Current Liabilities
The answer is expressed as a ratio
2019 2020 Answer is expressed in Ratio
Current Assets Current Assets 2019 2020
Current Liabilities Current Liabilities Current Assets - Inventory Current Assets - Inventory
Current Liabilities Current Liabilities
48 000 34 000
12 000 15 000 48 000 - 24 000 34 000 – 16 000
12 000 15 000
=4 = 2. 27
1 1 =2 = 1. 2
= 4:1 = 2. 27 : 1 1 1
= 2:1 = 1. 2: 1
The Working Capital of a business must be adequate to finance the
day-to-day trading activities. N.B The acceptable acid test ratio in the competitive market is 1:1
A business which lacks working capital may encounter the
following problems; 3. Efficiency Ratios: They measure how effectively the business is
Inability to meet liabilities when they fall due using the available resources
- Inability to take advantage of cash discounts
- Difficulties in obtaining further supplies on credit 1. Rate of Inventory Turn / Stock Turn – it measures the number
- Cannot take advantage of business opportunities when they of times a business sells and replaces its inventory in a given period
arise of time.
Formula;
Ways of Improving Working Capital Position Cost of sales (C.O.G.S)
- Introduction of further/additional capital Average inventory
- Obtaining long-terms loans

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 Average inventory = Opening Inventory + Closing Inventory
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Answer is expressed in times

2019 2020
Cost of sales (C.O.G.S) Cost of sales (C.O.G.S)
Average inventory Average inventory

Average inventory =
Opening inven + Closing inve Average inventory =
2 Opening inven + Closing inve
2
80 000
(100 000 + 20 000) 100 000
2 (40 000 + 20 000)
= 2:67 times 2
= 1. 52 times
The quicker the inventory is sold indicates less funds are tied up in
inventory hence efficiency. It indicates
- High sales
- Low selling price
- Increase in demand of goods/service
- Business activity has gone up

The slower the inventory is sold indicates more funds are tied up in
inventory hence in-efficiency. It indicates
- Lower sales
- High selling price
- Fall in demand for goods/service
- Business activity has gone down

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 CORPORATE SOCIAL RESPONSIBILITY
WAYS OF PROTECTING THE ENVIRONMENT
There are several way by which businesses can protect the
environment such as;
 Establishing businesses in the zones legally allocated to reduce the
impact of noise and air pollution in residential areas.
 Reforestation: growing of trees and plants in order to reduce soil
erosion.
 Recycling: turning waste into useful products
 Litter picking campaigns to sensitise the community on the dangers
and importance of litter picking.
Legislation available to protect the environment
1. The Fauna Conservation Act
- Controls the number and type of hunting licenses issued by spelling
out the terms and conditions applicable to such licenses and penalties
for their infringement.
2. Wildlife conservation and National Parks Act, 1992
-Provides provisions for the conservation and management of
wildlife in Botswana.
-Provides for the establishment, control and management of national
parks and game reserves.
3. Government Paper No.1 of 1986-Wildlife conservation Policy
-Aims to obtain better yield or economic return from land allocated
for wildlife.
-Ensure continuity of wildlife resources
4. Waste management Act
-Aims to prevent improper waste dumping through the adoption of
national waste management policy.
-Coordinates, monitors and formulate policies on waste management
in Botswana through waste management department.
-Implements training programmes and public education campaign to
educate people on ways of protecting the environment.
5. Council by Laws
-Aimed at reducing bad business practices such as
-dumping of rubbish on streets
-pouring toxic chemicals down the drain
-pouring oil onto the floor
PRESSURE GROUPS
The role of pressure groups on protecting the environment
1. The Kalahari conservation society
This is a national wildlife and environmental NGO. It aims:
-To conserve Botswana’s rich wildlife and its environment through
education and publicity.
-To encourage and in some instances finance research issues
affecting these resources and their conservation.
It is also involved in the
- support of vital conservation and anti-poaching programmes
- support of sustainable utilization of natural resources
- collection and interpretation of data on natural resources
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 3. Wildlife Clubs
Students participate in wildlife and environmental activities which
are educational to them for future environmental issues.
4. The Botswana Chapter of Institute of waste management
-Helps towards improving waste management services in Botswana
and SADC region.
5. An organization of environmental activists, i.e. people concerned
about the environment. It has become a global symbol for people
who seek to challenge those who seek to pollute and damage the
planet.
SUSTAINABLE WAYS OF UTILISING THE RESOURCES IN
THE ENVIRONMENT
-Eco- tourism: Tourists are able to enjoy areas of natural beauty
without requiring over-development that might harm the
environment.
-Recycling resources reduces waste. Used cans, bottles, paper and
cardboard can be recycled and reduces the need to use extra
resources.
-Limiting carbon emissions generated from industrial and domestic
use of fuels can assist in reducing pollution levels and limit
environmental problems such as global warming and acid rain.
-Resource substitution is another sustainable way in which resources
can be managed. Renewable resources can be used instead of finite
resources. Electric power can be produced with a renewable energy
resource such as tidal, wind or solar power instead of fossil fuels.
IMPLICATIONS OF A BUSINESS ON THE COMMUNITY
- Job creation which leads to income hence improving their standard
of living.
- Provide goods which allows people to have choices/ variety to
choose from hence satisfy their needs and wants.
- Pollution- through waste materials from production process hence
cause diseases.
- Competition resulting in closure of other retailers resulting in
limited choice/ loss of jobs.
- Provides sponsorship
- Developments in the community
WAREHOUSING
The protection given to goods from the time they are produced until
when they are needed by consumers.
IMPORTANCE OF WAREHOUSING
 It protects goods from damage due to bad weather /theft
therefore reduced chances of loss to the business.
 It helps to stabilize prices by preventing either shortage or
excess developing on the market hence efficient budgeting
 Ensure a regular supply of goods to customers hence
customer satisfaction.
 Help the business to be able to produce/buy in large
quantities thereby enjoys economies of scale.
 It provides space necessary for the preparation of goods for
sale by repackaging, branding labeling and blending.
 It provides space for the display of goods for customers to
inspect the goods before buying them.
TYPES OF WAREHOUSES AND THEIR USES
1. COLD STORAGE WAREHOUSE: A form of specialist
warehouse used mainly for the storage of perishables like
fruits and vegetables, fresh milk, meat etc. they enable
perishables to be exported throughout the world without the
fear that they would go bad on transit.
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2. MANUFACTURE’S WAREHOUSE/DEPOTS: These are
warehouses used by manufactures to store raw materials,
components, tools and machinery necessary for production
to take place and also for storing finished products before
selling them.
3. BUILDERS TOOL SHED: A temporary warehouse used
by builders/construction companies to keep their
tools/equipment, building materials, site rations as well as
their uniforms and protective clothing.
4. PUBLIC SECTOR WAREHOUSE: large depots used by
government departments and parastatal bodies to store their
supplies and government strategic reserves.
E.g. the central Medical Stores used by ministry of health
to store medical supplies,
Silos used by Botswana Agricultural marketing boards to
store grains
5. SEAPORT AND AIRPORT AUTHORITY
WAREHOUSE: Warehousing facilities provided by port
authorities to facilitate the worldwide distribution of goods
in international trade by storing goods while on transit
awaiting customs clearance and transport.
6. WHOLESALE WAREHOUSE: Warehouses used by
wholesalers to store their goods, break the bulk and prepare
the goods for sale.
7. LARGE SCALE RETAILER’S WAREHOUSE:
Warehouses used by large scale retailers to store their goods
in order to supply to the branches after buying them in bulk
through their central purchasing department.
8. BONDED WAREHOUSES: Warehouses used for storage
of dutiable goods on which duty has not yet been paid. They
are under the control of BURS department
 They are important as they help economize the
working capital of traders as those who do not have
enough working capital may sell their goods while
still in bond in order to avoid the payment of duties.
 Goods may also be prepared for sale while on bond.
Bonded warehouses may be preferred to other types of
warehouses when:
 The imported goods are dutiable and the trader does not have
sufficient capital to pay the duties immediately.
 The goods imported are not required immediately and they
therefore need to be stored under the control of the customs
authorities without payment of duties until they are removed.
 The goods are to be re-exported on which in which case the
importer would not have to pay duty.
 The goods need to be prepared for sale
bottling/packaging/blending/labeling.
 The trader does not have the correct license in place for the
imported goods and needs time to obtain them.
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