Vijay runs a wholesale furniture business. All goods are sold on credit terms. He provided the following information at the end of his third year of trading:
                                                                                                                       $
On 1 January 20–2:
Inventory ...................................................................................            5,600
Capital employed ........................................................................     130,000

For the year ended 31 December 20–2:
Revenue ..........................................................................................    66,000
Cost of sales ..................................................................................     48,840
Loan interest ..............................................................................         1,500
Profit for the year ...........................................................................    5,610

At 31 December 20–2:
Inventory .....................................................................................         6,200
Trade receivables .............................................................................   5,120

Vijay decided to compare his results with those of AK Limited, an old-established food wholesaler.

a. Complete the following table to show the ratios for Vijay’s business for the year ended 31 December 20–2. The answers should be correct to two decimal places.

b. Suggest two reasons for the difference in the gross margin.
c. State which business has better control of its expenses. Give a reason for your answer.
d. Suggest two reasons for the difference in the rate of inventory turnover.
e. Suggest four factors which Vijay should consider when comparing his results with those of AK Limited.

Transcribed Image Text:

Vijay AK Limited Gross margin 17.50% Profit margin 9.25% Return on capital employed 6.76% Rate of inventory turnover 16.44