John and Azina were looking at the accounts for the year ended 28 February which had just been produced. John was pleased. Turnover had increased amazingly over the previous year and although the overall net profit to sales figure was disappointing (he had expected it to be more in the region of 20 per cent) the return on equity was a tremendous. Azina agreed that it had been a good year. _ ‘We've increased turnover but mainly through one-off sales. We had only one bad _ debt this year and that must be an improvement. The balance sheet suggests that we are ina stable position financially. I think we should go out and celebrate.’ j The subject of the accounts came up again when John met Mike Cowley for lunch tT — later that week. Mike came up with a suggestion. x a Qiao 2 a se ee

a, tad, ! on > ae i Da , ; : iad ‘I have a copy of the accounts of a company in the same line of business in the North "A East — Rowe and Davies. They are based in Durham but cover the whole of the north of England and parts of Scotland. If you are finding it difficult to judge your perfor- - mance why don’t you compare your results with that company? They are about the _ same size but have been around for longer. I think they set up in the late seventies.’ _ John was taken with this idea and Mike promised to send him the accounts. When the accounts arrived Azina and John set about analyzing the figures as they stood. They decided to compare the working capital management, long-term capital structure and profitability ratios