Business A and Business B are both engaged in retailing, but seem to take a different approach to this trade according to the information available. This information consists of a table of ratios, shown below:

Required:

(a) Explain briefly how each ratio is calculated.

(b) Describe what this information indicates about the differences in approach between the two businesses. If one of them prides itself on personal service and one of them on competitive prices, which do you think is which and why? (Association of Chartered Certified Accountants)

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Ratio Current ratio Quick assets (acid test) ratio Return on capital employed (ROCE) Return on shareholders' funds (ROSF) Accounts receivable turnover Accounts payable turnover Gross profit percentage Net profit percentage Inventory turnover Business A 2:1 1.7:1 20% 30% 63 days 50 days 40% 10% 52 days Business B 1.5:1 0.7:1 17% 18% 21 days 45 days 15% 10% 25 days