You are to study the following financial statements for two furniture stores and then answer the questions which follow.

Required:

(a) Calculate the following ratios for each business:

(i) Gross profit as percentage of sales;

(ii) Net profit as percentage of sales; 

(iii) Expenses as percentage of sales;

(iv) Stock turnover; 

(v) Rate of return of net profit on capital employed (use the average of the capital account for this purpose);

(vi) Current ratio;

(vii) Acid test ratio;

(viii) Debtor/sales ratio;

(ix) Creditor/purchases ratio.

(b) Drawing upon all your knowledge of accounting, comment upon the differences and similarities of the accounting ratios for A and B. Which business seems to be the most efficient? Give possible reasons.

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Profit and loss accounts Sales Less Cost of goods sold Opening stock Add Purchases Less Closing stock Gross profit Less Depreciation Wages, salaries and commission Other expenses Net profit Balance sheets Fixed assets Equipment at cost Less Depreciation to date Current assets Stock Debtors Bank Less Current liabilities Creditors Financial Statements £ 100,000 200,000 300,000 (60,000) 5,000 165,000 45,000 50,000 (40,000) 60,000 125,000 25,000 210,000 (104,000) X £ 555,000 (240,000) 315,000 (215,000) 100,000 10,000 106,000 116,000 £ 80,000 320,000 400,000 (70,000) 15,000 220,000 35,000 100,000 (30,000) 70,000 100,000 12,500 182,500 (100,500) Y £ 750,000 (330,000) 420,000 (270,000) 150,000 70,000 82,000 152,000