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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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