6. Business A and Business B are both engaged in retailing, but seem to take a different approach to this trade according to the information available. This information consists of a table of ratios, shown below: Ratio Business A Business B Current ratio 2:1 1.5:1 0.7:1 Quick assets (acid test) ratio Return on capital employed (ROCE) Return on shareholders' funds (ROSF) 1.7:1 20% 17% 30% 18% 63 days 21 days 50 days 45 days Debtors turnover Creditors turnover Gross profit percentage Net profit percentage 40% 15% 10% 10% Stock turnOver 52 days 25 days
6. Business A and Business B are both engaged in retailing, but seem to take a different approach to this trade according to the information available. This information consists of a table of ratios, shown below: Ratio Business A Business B Current ratio 2:1 1.5:1 0.7:1 Quick assets (acid test) ratio Return on capital employed (ROCE) Return on shareholders' funds (ROSF) 1.7:1 20% 17% 30% 18% 63 days 21 days 50 days 45 days Debtors turnover Creditors turnover Gross profit percentage Net profit percentage 40% 15% 10% 10% Stock turnOver 52 days 25 days
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:b) Discuss the procedure of
6. Business A and Business B are both engaged in retailing, but seem to take a different approach to this
trade according to the
information available. This information consists of a table of ratios, shown below:
Business A Business B
Ratio
2:1
1.5:1
Current ratio
1.7:1
0.7:1
Quick assets (acid test) ratio
Return on capital employed (ROCE)
Return on shareholders' funds (ROSF)
20%
17%
30%
18%
63 days 21 days
50 days 45 days
Debtors turnover
Creditors turnover
Gross profit percentage
Net profit percentage
40% 15%
10% 10%
Stock turnover
52 days 25 days
Required:
(a) Explain briefly how each ratio is calculated.
(b) Describe what this information indicates about the differences in approach between the two
businesses. If one of them prides itself of personal service and one of them on competitive prices, which
do you think is which and why?
END
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