Western Trading plc is a company which uses a variety of component parts in its manufacturing operations. One of the company's suppliers has recently gone out of business and therefore Western is now seeking an alternative (and reliable) source of supply for the component parts which were previously purchased from that supplier. Two companies have been identified as potential suppliers. Both companies prepare accounts to 31 December each year and Western has obtained the following copies of each company's financial statements for the year to 31 December 2017:

Statements of comprehensive income for the year to 31 December 2017

Statements of financial position as at 31 December 2017.

For both companies, all purchases and sales are made on credit terms.

Required:

(a) Calculate three profitability ratios, two liquidity ratios, three efficiency ratios and one gearing ratio for X Ltd and for Y Ltd.

(b) Use the information provided by these ratios to explain to the management of Western Trading plc which of the two companies seems likely to be the more reliable source of supply.
(c) Identify any further information which should be obtained before a final decision is made.

(CIPFA)

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X Ltd £000 Y Ltd £000 6,310 4,240 Sales revenue 5,720 3,840 Cost of sales Gross profit Operating expenses 2,070 1,080 1,880 760 Profit before interest and taxation 1,120 990 Interest payable 350 50 Profit before taxation 1,070 320 640 210 Тахаtion Profit after taxation 750 430 X Ltd Y Ltd £000 £000 Assets Non-current assets Current assets Inventories Trade receivables Bank balance 4,570 6,330 510 890 1,090 670 340 1,520 1,980 6,090 8,310