Alpha Ltd and Beta Ltd are both wholesalers serving broadly the same market, but they seem to take a different approach to it according to the following information. Ratio Alpha Ltd Beta Ltd Return on capital employed (ROCE) 20% 9% Return on ordinary shareholders’ funds (ROSF) 30% 28% The average settlement period for trade receivables 63 days 21 days The average settlement period for trade payables 50 days 45 days Gross profit margin 40% 15% Operating profit margin 10% 10% The average inventory turnover period 52 days 25 days Required: Describe what this information indicates about the differences in approach between the two businesses. If one of them prides itself on customer service and one of them on competitive prices, which do you think is which and why?

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Question

Alpha Ltd and Beta Ltd are both wholesalers serving broadly the same market, but they seem to
take a different approach to it according to the following information.

Ratio	Alpha Ltd	Beta Ltd
Return on capital employed (ROCE)	20%	9%
Return on ordinary shareholders’ funds (ROSF)	30%	28%
The average settlement period for trade receivables	63 days	21 days
The average settlement period for trade payables	50 days	45 days
Gross profit margin	40%	15%
Operating profit margin	10%	10%
The average inventory turnover period	52 days	25 days

Required:
Describe what this information indicates about the differences in approach between the two
businesses. If one of them prides itself on customer service and one of them on competitive
prices, which do you think is which and why?

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