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Talk to an Expert| Category | Assignment | Subject | Accounting |
|---|---|---|---|
| University | University College Dublin | Module Title | ACC10040 Financial Accounting 1 |
| Academic Year | 2026 |
|---|
Squeaky-Clean plc is a manufacturing business with a factory in Donegal. They make soap, hand sanitiser, and other hygiene products. The COVID-19 crisis (from 2020 to 2022) increased demand for their products. This led to significantly higher sales compared to pre-COVID levels. However, the price that Squeaky-Clean must pay for its raw materials (oils, chemicals, emulsifiers, and alcohol) has also increased due to higher energy costs and supply chain disruptions. During the COVID-19 crisis, Squeaky-Clean expanded its operations to meet demand. This was financed by a loan at a variable interest rate that will have to be repaid or replaced by new debt in 5 years (2028.)
Squeaky-Clean’s Statement of Profit or Loss and Statement of Financial Position for 2023, 2022 and 2021 are given below:
Squeaky-Clean’s Statement of Profit or Loss for the year ended 31 December
| 2023 €’000 | 2022 €’000 | 2021 €’000 | |
|---|---|---|---|
| Revenue | 6,150 | 7,300 | 8,200 |
| Cost of sales | (3,690) | (4,161) | (4,346) |
| Gross profit | 2,460 | 3,139 | 3,854 |
| Administration costs | (1,100) | (1,195) | (1,260) |
| Distribution and marketing expenses | (306) | (456) | (506) |
| Other operating costs | (50) | (150) | (70) |
| Operating profit / (loss) | 1,004 | 1,338 | 2,018 |
| Finance costs | (130) | (110) | (60) |
| Profit before taxation | 874 | 1,228 | 1,958 |
| Income taxation expense | (105) | (206) | (223) |
| Profit for the financial year | 769 | 1,022 | 1,735 |
Squeaky-Clean’s Statement of Financial Position (extract) for the year ended 31 December
| 2023 €’000 | 2022 €’000 | 2021 €’000 | |
|---|---|---|---|
| Total equity | 6,990 | 6,221 | 4,907 |
| Long-term debt | 2,000 | 2,000 | 2,000 |
Required:
(i) Identify the reasons for the change in Squeaky-Clean’s profitability between 2021 and 2023. Support your answer with appropriate ratios and measures. (18 marks)
(ii) Calculate the Debt/Equity percentage for Squeaky-Clean plc for 2023, 2022 and 2021. Discuss how Squeaky-Clean has managed its debt over the three years and how that has been reflected in the Debt/Equity percentage. (7 marks)
(Total: 25 Marks)
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