Question 1 Tempest Ltd manufactures vehicle parts. The company sells its products to a number of independent distributors who resell the goods to garages and other retail outlets in their areas. Tempest Ltd has a policy of having only one distributor in any geographical area. Distributors are selected mainly on the basis of financial viability. The company is keen to avoid the disruption of sales and loss of credibility associated with the collapse of a distributor. Tempest Ltd is currently trying to choose between two companies, Universe Ltd and Cosmos Ltd, which have applied to be its sole distributor in Timcity, a new sales area. The applicants have supplied the following information Universe Ltd 2017 2018 2019 1,280 1,600 2,000 22 20 18 8 12 16 Cosmos Ltd 2017 2018 2019 1,805 1,900 2,000 23 22 24 14 15 16 Sales ($000) Gross profit (%) Return on capital employed (%) Current ratio Quick ratio Debt to equity (%) 1.7:1 1.4:1 15 1.9:1 1.1:1 21 2.1:1 0.9:1 28 1.7:1 0.9:1 29 1.65:1 0.9:1 30 1.7:1 0.9:1 27 Required: (a) Using the information provided, explain which of the companies appears to be a safer choice as a distributor for Tempest Ltd. (14 marks) (b) Identify any reservations that you may have for the analysis in part (a). (6 marks) (Total 20 marks)