Study the following financial statements of two companies and then answer the questions which follow. Both companies are stores selling carpets and other floorcoverings. The values shown are in £000s.

Required:

(a) Calculate the following ratios for both Spreadlight Ltd and Easylawn Ltd:

(i) Gross profit as percentage of sales;

(ii) Net profit as percentage of sales;

(iii) Expenses as percentage of sales;

(iv) Stock turnover;

(v) Rate of return of net profit on capital employed (for the purpose of this question only, take capital as being total of share capitals + reserves at the balance sheet date);

(vi) Current ratio;

(vii) Acid test ratio;

(viii) Debtor/sales ratio;

(ix) Creditor/purchases ratio.

(b) Comment briefly on the comparison of each ratio as between the two companies. State which company appears to be the most efficient, giving what you consider to be possible reasons.

Transcribed Image Text:

Profit and loss accounts Sales Less Cost of goods sold Opening stock Add Purchases Less Closing stock Gross profit Less Expenses Wages and salaries Directors' remuneration Other expenses Net profit Add Balance from last year Less Appropriations General reserve Dividend Balance carried forward to next year Spreadlight Ltd £000 190 2,100 2,290 (220) 180 70 14 30 140 £000 2,500 (2,070) 430 (264) 166 104 270 (170) 100 Easylawn Ltd £000 110 1,220 1,330 (160) 130 120 10 30 112 £000 1,600 (1,170) 430 (260) 170 60 230 (142) 88