You are given the following simplified statements of financial position of the Port Andrew Company and the Port Edward Company as at 31 December year 1.

During year 1 the operating profit of the Port Andrew Company amounted to £61,000. The operating profit of the Port Edward Company amounted to £40,000.

Which of the two companies appears to be the financially weaker, and why? You should calculate the current ratio, the liquidity ratio, the capital gearing ratio and the interest times cover.

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Non-current assets Port Andrew Ltd Port Edward Ltd Tangible assets Freehold premises (at cost) 100,000 200,000 Plant (at cost less depreciation) 200,000 100,000 Vehicles (at cost less depreciation) 100,000 100,000 400,000 400,000 Investments 200,000 30,000 500,000 430,000 Current assets Inventories Receivables 70,000 40,000 50,000 90,000 Cash 10,000 60,000 130,000 190,000 Total assets 730,000 620,000 Current liabilities Trade payables 70,000 80,000 Non-current liabilities 10% debentures 300,000 100,000 Total liabilities 370,000 180,000 Equity Share capital 300,000 300,000 Retained earnings 60,000 140,000 360,000 440,000 Total equity and liabilities 730,000 620,000