You are to study the following financial statements for two similar types of retail store and then answer the questions which follow.

Required:

(a) Calculate the following ratios:
(i) gross profit as percentage of sales; (vi) current ratio;
(71) net profit as percentage of sales; (vii) acid test ratio;
(iii) expenses as percentage of sales; (viii) debtor/sales ratio;
(iv) stockturn; (ix) creditor/purchases ratio.
(v ) rate of return of net profit on capital employed (use the average of the capital account for this purpose);

(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 Other expenses Net profit Financial Statements A B 80,000 120,000 25,000 22,500 50,000 91,000 75,000 113,500 15,000 60,000 17,500 96,000 20,000 24,000 1,000 3,000 9,000 10,000 6,000 9,000 10,000 15,000 Balance sheets Fixed assets Equipment at cost 10,000 20,000 Less Depreciation to date 8,000 2,000 6,000 14,000 Current assets Stock 15,000 17,500 Debtors 25,000 20,000 Bank 5,000 2,500 45,000 40,000 Less Current liabilities Creditors 5,000 40,000 10,000 30,000 42,000 44,000 Financed by: Capitals Balance at start of year Add Net profit Less Drawings 38,000 36,000 10,000 15,000 48,000 $1,000 6,000 7,000 42,000 44,000