8.2 The management of Rodington Limited pays particular attention to the ratios and percentages which they calculate from their annual accounts. For the year ended 31 December 2014, they have listed the following statistics, which they are comparing with those of another company, Sundorne Limited, shown alongside:

Rodington Ltd Sundorne Ltd Gross margin 60% 5%

Net margin 20% 2%

Average collection period 30 days 5 days Current ratio 2:1 0.4:1 Gearing percentage 20% 70%

One of the two companies is a manufacturing company, the other is a food retailer, with an expanding number of stores.

(a) Which of the two companies is the food retailer? Give two reasons for your choice.

(b) Assuming that the total cost of sales of Rodington Ltd was £200,000 in 2014, the closing cash and cash equivalents were £11,004 and the average inventory for 2014 was £40,000, calculate:

(i) the total of Rodington Limited’s trade receivables at 31 December 2014, assuming all sales were on credit terms

(ii) the total of Rodington Limited’s current liabilities at 31 December 2014.

(c) Assuming you were an equity shareholder of Sundorne Limited, what is the significance to you of the company’s gearing percentage?