The Senior Accounting Assistant of Beacon Ltd has calculated the ratios in the table below

from $2016$ financial statement. He has also ascertained comparable ratios from the companys

main competitor Excellence Ltd for the same period.

Ratios Beacon Ltd Excellence

Gross Profit Margin $60\%50\%$

Current ratio $3$:$16$:$1$

Debt$/$Equity ratio $105\%90\%$

Debtors collection period, $16$ days $18$ days

Quick ratio $2$:$12$:$1$

Creditors payment period $11$ days $20$ days

Net Profit Margin $20\%30\%$

Interest cover $4$ times $2$ times

Required:

a$)$ As the accountant of the company, write a comprehensive report to management regarding

the performance of the company. In your report, group the ratios under their main types

$($eg$.$ Profitability$),$ interpret them, comment on performance and suggest ways for

improvement.

b$)$ Briefly explain the drawbacks$/$demerit of ratio analysis.