A)Calculate the following ratios: • Return on Capital Employed (ROCE) • Current Ratio • Gearing Ratio • Price/Earnings (P/E) Ratio B) Based on the above ratios explain, which company George H. and James W. should invest in and discuss the limitations of your analysis. George H. and James W. have identified two companies, Riccarton Plc andEdinburgh Plc they would be interested in investing. As they can only invest inone of the companies, they have asked you to provide them with anassessment of the performance of both companies based on the followingratios: Return on Capital Employed (ROCE), Current Ratio, Gearing Ratio andPrice/Earnings (P/E) Ratio. The following information from the Statement ofFinancial Position (Balance Sheet) and the Income Statement (Profit and LossAccount) for both companies is available:Riccarton PlcEdinburgh Plc000, 3000, 3350Non-current assets500Current assets15080Long-term borrowingsShort-term borrowings18010010050Non-current liabilities250150Current liabilities12070EquityProfit before interest and tax2001305045Earnings per share35 pence28 penceAdditional InformationCurrent market value per share195 pence451 pence

= Earnings before interest and tax ÷ (Total assets - current liabilities) For Riccarton pic: ROCE…

A)Calculate the following ratios: • Return on Capital Employed (ROCE) • Current Ratio • Gearing Ratio • Price/Earnings (P/E) Ratio B) Based on the above ratios explain, which company George H. and James

A)Calculate the following ratios: • Return on Capital Employed (ROCE) • Current Ratio • Gearing Ratio • Price/Earnings (P/E) Ratio B) Based on the above ratios explain, which company George H. and James

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A)Calculate the following ratios:
• Return on Capital Employed (ROCE)
• Current Ratio
• Gearing Ratio
• Price/Earnings (P/E) Ratio

B) Based on the above ratios explain, which company George H. and James
W. should invest in and discuss the limitations of your
analysis.

George H. and James W. have identified two companies, Riccarton Plc and
Edinburgh Plc they would be interested in investing. As they can only invest in
one of the companies, they have asked you to provide them with an
assessment of the performance of both companies based on the following
ratios: Return on Capital Employed (ROCE), Current Ratio, Gearing Ratio and
Price/Earnings (P/E) Ratio. The following information from the Statement of
Financial Position (Balance Sheet) and the Income Statement (Profit and Loss
Account) for both companies is available:
Riccarton Plc
Edinburgh Plc
000, 3
000, 3
350
Non-current assets
500
Current assets
150
80
Long-term borrowings
Short-term borrowings
180
100
100
50
Non-current liabilities
250
150
Current liabilities
120
70
Equity
Profit before interest and tax
200
130
50
45
Earnings per share
35 pence
28 pence
Additional Information
Current market value per share
195 pence
451 pence

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