The management of Ercall Limited pays particular attention to the ratios and percentages which they calculate from
Question:
The management of Ercall Limited pays particular attention to the ratios and percentages which they calculate from their annual accounts. For the year ended 31 December 2009, they have calculated the following figures, which they are comparing with those of another company, Roden Limited, shown alongside:
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 Ercall Ltd was £200,000 in 2009, the closing cash and cash equivalents were £11,004 and the average inventory for 2009 was £40,000, calculate:
(i) the total of Ercall Limited's trade receivables at 31 December 2009, assuming all sales were on credit terms (ii) the total of Ercall Limited's current liabilities at 31 December 2009.
c Assuming you were an ordinary shareholder of Roden Limited, what is the significance to you of the company's gearing percentage?
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