You are to study the following financial statements for two furniture stores and then answer the questions which follow.

Required:

(a) Calculate the following ratios for each business: (i) gross profit as percentage of sales; (vi) current ratio; (ii) net profit as percentage of sales; (vii) acid test ratio; (iii) expenses as percentage of sales; (viii) accounts receivable/sales ratio; (iv) inventory turnover; (ix) accounts payable/purchases ratio. (v) rate of return of net profit on capital employed (use the average of the capital account for this purpose);

(b) Drawing upon all your knowledge of accounting, comment upon the differences and similarities of the accounting ratios for A and B. Which business seems to be the most efficient? Give possible reasons.

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Income Statements Sales Less Cost of goods sold Opening inventory Add Purchases Less Closing inventory Gross profit Less Depreciation Wages, salaries and commission Other expenses Net profit Statements of financial position Non-current assets Equipment at cost Less Depreciation to date Current assets Inventory Accounts receivable Bank Total assets Current liabilities Accounts payable Net assets Financed by: Capitals Balance at start of year Add Net profit Less Drawings Total capital Financial Statements 100,000 200,000 300,000 (60,000) 5,000 165,000 45,000 50,000 (40,000) 60,000 125,000 25,000 X 555,000 (240,000) 315,000 (215,000) 100,000 10,000 210,000 220,000 (104,000) 116,000 76,000 100,000 176,000 (60,000) 116,000 80,000 320,000 400,000 (70,000) 15,000 220,000 35,000 100,000 (30,000) 70,000 100,000 12,500 750,000 (330,000) 420,000 (270,000) 150,000 70,000 182,500 252,500 (100,500) 152,000 72,000 150,000 222,000 (70,000) 152,000