Ratio Analysis Task

Alpha and Beta Ltd

Trading Profit and Loss Accounts (Income Statements)

Year Ended 31^st March 2020

	Alpha		Beta
Sales		100,000		200,000
Less cost of Sales
Opening stock	6,000		29,000
Purchases	44,000		94,000
	50,000		123,000
Closing Stock	5,000	45,000	31,000	92,000
Gross Profit		55,000		108,000
Operating Expenses		25,000		58000
Net Profit before Tax		30,000		50,000

Balance Sheet

As at 31^st March 2020

	Alpha		Beta
Fixed Assets		80,000		145,000
Current Assets
Stock	5,000		31,000
Debtors	4,000		25,000
Bank Balance	6,000		18,000
	15,000		74,000
Less
Current Liabilities
Creditors	9,000		51,000
		6,000		23,000
		86,000		168,000
Financed by
Capital		86,000
Ordinary Shares				125,000
Retained Profit				43,000
				168,000

Task:

Both Alpha and Beta are in the same line of business. All the purchases and sales of both businesses are on credit.

Using the information above:

• Calculate 4 ratios to compare the profitability of the two businesses.
• Calculate 2 ratios to compare the liquidity of the two businesses.
• Calculate 1 ratio for efficiency.

Which of the 2 businesses demonstrates better financial management, control and overall better health?