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:
(1) gross profit as % of revenue;
(if) 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 capitals +
reserves at the balance sheet date);
(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.

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