Two retail firms, A and B, are of similar size and were capitalized for similar amounts. Firm A paid £100,000 for a freehold property; firm rented its property and invested £100,000 in a government security yielding 10 per cent. The following are the abridged trading results for 1984:

A Β
£ £ £ £
Gross profit 100,000 100,000 Expenses (other than rent) 60,000 60,000 Rent - 10,000 Trading profit 40,000 30,000 Investment income 10,000 Net Profit 40,000 40,000

(a) Do you envisage any problems in comparison of the trading results of the two companies?

(b) How might such problems be overcome?

(c) What reservations might you thus have when making inter-firm comparisons?

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Gross profit Expenses (other than rent) 60,000 Rent Trading profit Investment income Net Profit A B 100,000 100,000 60,000 10,000 40,000 30,000 10,000 40,000 40,000