Mumba and Chikosi are both engaged in retailing as soles traders, but seem to take a different approach to trading. The following information has been calculated in respect of both businesses.

Ratio

Mumba

Chikosi

Current ratio

2:1

1.5:1

Acid test ratio

1.7:1

0.7:1

Return on capital employed

20%

12%

Trade receivables settlement period

63 days

21 days

Trade payables settlement period

58 days

45 days

Gross profit margin

40%

15%

Operating profit margin

10%

10%

Inventories turnover period

52 days

25 days

Required:

(a) Describe what this information indicates about the differences in approach between the two businesses. [10 Marks]

(b) If one of them prides itself on personal service, and one of them on competitive prices. Which business do you think engages in personal service and which one engages on competitive prices? Give reasons for your answer? [10 Marks]

[Total: 20 Marks]