Study the following financial statements of two companies and then answer the questions which follow. Both companies are stores selling carpets and other floor coverings; each company has a single store in the same 10-year-old custom-built shopping complex located on the outskirts of a major UK city.

Required:
(a) Calculate the following ratios for each of R Ltd and T Ltd:
(i) Gross profit as % of revenue;
(ii) Net profit as % of revenue;
(iii) Expenses as % of revenue;
(iv) Inventory turnover;
(v) Rate of return of net profit on capital employed (for the purpose of this question only, take capital as being total of share capital + reserves at the date of the statement of financial position);
(vi) Current ratio;
(vii) Acid test ratio;
(viii) Accounts receivable : revenue ratio;
(ix) Accounts payable : purchases ratio.
(b) Comment briefly on the comparison of each ratio as between the two companies. State which company appears to be the more efficient, giving what you consider to be possible reasons.

Transcribed Image Text:

Revenue Less Cost of goods sold Opening inventory Add Purchases Less Closing inventory Gross profit Less Expenses Depreciation Wages and salaries Directors' remuneration Other expenses Net profit Statements of Profit or Loss R Ltd £000s 440 1,550 1,990 (490) 27 180 210 23 £000s 2,000 (1,500) 500 (440) 60 £000s 144 996 1,140 T Ltd (240) 14 160 210 16 £000s 1,400 (900) 500 (400) 100