You are to study the following financial statements for two businesses that operate in the same industry and then answer the questions which follow.

Required:

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

(b) Comment on the ratios you have calculated in (a) and suggest some possible reasons for the differences and similarities between the businesses indicated by your figures.

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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 Balance Sheets Non-current assets Equipment at cost Less Accumulated depreciation Current assets Inventory Trade receivables Bank Total assets Current liabilities Trade payables Net assets Financed by: Capitals Balance at start of year Add Net profit Less Drawings Total capital Financial Statements Business J 51,000 264,000 (64,000) 12,000 135,000 36,000 120,000 (50,000) 64,000 68,000 15,000 472,000 (251,000) 221,000 (183,000) 38,000 70,000 147,000 217,000 (66,000) 151,000 148,000 38,000 (35,000) 151,000 Business K 62,000 401,000 (50,000) 16,000 151,000 47,000 160,000 (30,000) 50,000 123,000 5,000 695,000 (413,000) 282,000 (214,000) 68,000 130,000 178,000 308,000 (99,000) 209,000 221,000 68,000 (80,000) 209,000