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: (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. You should also briefly 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),
(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. You should also briefly discuss the limitations of your analysis.
![Riccarton Plc
£ '000
500
Edinburgh Plc
000, 3
Non-current assets
350
150
180
Current assets
80
Long-term borrowings
Short-term borrowings
Non-current liabilities
100
100
250
50
150
Current liabilities
Equity
Profit before interest and tax
Earnings per share
120
70
200
50
130
45
35 pence
Additional Information
195 pence
28 pence
Current market value per share
451 pence](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb244608d-9486-44b9-a649-61fd6277152b%2F0b3180cf-36c8-42fa-a712-48c37556a086%2Fohrrtvj_processed.jpeg&w=3840&q=75)
![](/static/compass_v2/shared-icons/check-mark.png)
Step by step
Solved in 2 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)