Self-test Sharma has obtained the figures of a rival restaurant owned by Mustapha. The following information is available.

Mustapha Sharma Rate of stock turnover 52 times 40 times Net profit to sales percentage 10% 10%

Gross margin 30% 40%

Acid test ratio 1.1:1 0.5:1 It is known that the ideal liquid capital ratio for these businesses is 1:1.

(a) Give the formula for each of the following:

(i) acid test ratio;

(ii) gross margin;

(iii) rate of stock turnover.

(b) State one strategy that Sharma could use to improve the profitability of her business.

(c) State one strategy that Sharma could use to improve the liquidity of her business.
(Edexcel Accounting 7011, May 2006)