The simplified financial statements of two companies, P and Q, are shown in Figure 7.8.

Assuming that interest is charged on the long-term loan at 10 per cent per annum, calculate the following ratios for 20X1 and comment on the results:

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Figure 7.8 Financial statements for P and Q Income statement for 20X1 P Sales 45,000 40,909 less Cost of goods sold (36,000) (32,727) Gross profit 9,000 8,182 less Depreciation (3,500) (2,917) Other expenses (1,500) (1,364) Net profit 4,000 3,901 Balance sheet as at 31 December 20X1 Equipment at cost 35,000 29,167 less Depreciation (3,500) (2,917) 31,500 26,250 Inventory at cost 10,500 10,000 Net monetary current assets 2,000 2,000 less Long-term loan (10,000) (10,000) 34,000 28,250 Share capital Retained profits Other reserves 25,000 25,000 4,000 3,901 5,000 (651) 34,000 28,250