Identify two features of a private limited company.

Calculate the net profit margins for DH for 2016 and 2017.

Calculate net current assets (working capital) for DH for 2016 and 2017.

Explain one method of above-the-line promotion and one method of below-the-line promotion that DH could use to raise consumer awareness that it is a socially responsible company.

Discuss DH’s decision to develop a policy of corporate social responsibility (CSR).

Features of a private limited company include:

• shareholders have limited liability.
• ownership of shares is restricted to a small number of investors (varies from country to country but in general is a low number).
• information does not have to be shared publicly.
• it is less costly to manage shareholders because of lesser disclosure and other legal requirements.
• it is a separate legal entity distinct from the owners of its shares.

Accept any other relevant feature. Award [1] for each feature identified up to [2].

     2016                                    2017
$\frac{1370}{28000}$ = 4.89 %              $\frac{1300}{29000}$ = 4.48 %
             =====                             =====

Award [1] for each correct answer. Showing working is not required.

Accept 4.9 % (2016) and 4.5 % (2017), but do not accept 5 % (2016) or 4 % or 5 % (2017).

                      In 000s of dollars:
            2016                                    2017
5000 − 3000 = $2000      5200 − 3500 = $1700
                        =====                             =====

Award [1] for each correct answer. Showing working is not required.

Methods of above-the-line promotion that DH could use include:

• television advertising
• radio advertising
• advertising in newspapers, journals, magazines, or trade journals
• cinema advertising
• billboards.

Methods of below-the-line promotion that DH could use include:

• direct mailing
• exhibitions and trade fairs
• sponsorship
• public relations
• celebrity endorsement
• personal selling.

Do not accept word of mouth as a form of below-the-line promotion.

Accept any other appropriate form of above-the-line or below-the-line promotion.

Mark as a 2 + 2.

Award [1] for an appropriate above-the-line method identified and an additional [1] for development of the explanation illustrating the appropriateness of the method with respect to DH.

Award [1] for an appropriate below-the-line method identified and an additional [1] for development of the explanation illustrating the appropriateness of the method with respect to DH. Maximum award: [4].

If the answer has methods but no application (or just mentions the name of the business) then award a maximum of [2] overall.

Refer to Paper 2 markbands for May 2016 forward, available under the "Your tests" tab > supplemental resources. 

DH’s decision to develop a policy of corporate social responsibility (CSR) fits well with trends in business today, whereby many companies are doing so. Indeed, sometimes today stakeholder groups exert powerful pressure on companies to practice CSR. The pressure to follow triple-bottom line reporting is also influencing companies to act in a more socially responsible way (despite some criticism of CSR by certain economists).

DH has adopted several approaches that are popular today: giving profits, lending employees, and being more environmentally friendly. All these methods have garnered DH favourable media attention, though less clear is if DH’s brand identity has benefited. Sales growth has not improved. The gross profit margin decreased from 50 % to 48.28 %, and the net profit margin declined from 4.89 % to 4.48 %. The costs of donating profits, lending employees and presumably higher-priced biodegradable materials took a toll on profits. The situation also negatively affected the balance sheet, which saw a deteriorated working capital position, falling from $2 000 000 to $1 700 000.

One of the commonly cited reasons for practicing CSR is that it is a form of enlightened self-interest: doing good for others will in the long run lead to greater profits. In the case of DH, perhaps that was its intention. Employee morale improved, which can lead to greater productivity and loyalty (labour turnover would probably decline). CSR would enhance DH’s reputation, socially responsible consumers would find an additional reason to purchase DH products, and, over time, the company would make more profits than it otherwise would
have.

Some shareholders, however, are not satisfied with the results so far. At the annual general meeting, they complained about unimproved sales growth and lower margins, which they directly linked to the CSR programme. Several shareholders suggested that DH develop consumer awareness that it is a socially responsible company. The favourable media attention in the first year was insufficient to make an impact on the revenue side. Were DH to take this approach, reshape its brand identity and raise consumer awareness, it would have to invest in a promotional and public relations campaign, which might be costly. Profits and margins might go down before they go up, and possibly even more shareholders will be dissatisfied.

Accept any other relevant evaluation.

Marks should be allocated according to the Paper 2 markbands for May 2016 forward.

For a limited discussion of the financial situation (income statement only or balance sheet statement only), award up to [3]. For limited discussion of financial situation and one relevant non-quantitative consideration, award up to a maximum of [4].

If a candidate evaluates / addresses only the financial situation or only non-financial considerations, award a maximum of [5].

Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgement/conclusion.

Candidates cannot reach the [7–8] markband if they give judgement/conclusions that are not based on analysis/explanation already given in their answer.