Study the following financial statements for two very similar privately owned department stores which each comprise of one store in the city centre of a major UK city and then answer the questions which follow.

Required:

(a) Calculate the following ratios:
(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 (use the average of the capital account for this purpose);
(vi) current ratio;
(vii) acid test ratio;
(viii) accounts receivable : revenue ratio;
(ix) accounts payable : 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? Justify your opinion.

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Summary of Financial Statements Balance Sheets Non-current assets Building at cost A B 000s 000s 000s 000s 300 440 Less Depreciation to date (255) (220) 45 220 Equipment at cost 140 180 Less Depreciation to date (119) (90) 26 21 90 66 310 Current assets Inventory Accounts receivable 200 240 205 140 Bank Total assets Current liabilities Accounts payable Net assets 4 2 409 382 475 6921 (245) (252) 230 440 Financed by: Capital accounts Balance at start of year 240 430 Add Net profit 60 90 300 520 Less Drawings (70) (80) 230 440 Income Statements Revenue 1,800 2,700 Less: Cost of goods sold Opening inventory 300 280 Add Purchases 1,300 2,250 1,600 2,530 Less Closing inventory (200) (240) (1,400) Gross profit 400 (2,290) 410 Less Depreciation 22 40 Other expenses 318 280 (340) (320) Net profit 60 90