An investor is considering the purchase of shares in either Edgechem Ltd or Beauticolour Ltd. Both companies are in the same line of business and their accounts are summarised below:
Income statements for the year ended 31 October 2020
Edgechem Ltd Beauticolour Ltd
$000 $000 $000 $000
Sales revenue 596 678
Cost of sales (394) (526)
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Gross profit 202 152
Expenses:
Administrative (36) (45)
Selling and distribution (53) (56)
Depreciation (14) (19)
Loan note interest – (8)
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(103) (128)
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Net profit 99 24
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Statements of financial position as at 31 October 2020
Edgechem Ltd Beauticolour Ltd
Assets $000 $000 $000 $000
Non-current assets
At cost 420 1,070
Accumulated depreciation (113) (144)
––––– ––––––
307 926
Current assets
Inventory 138 167
Receivables 69 98
Cash and cash equivalents 96 303 9 274
––––– ––––– –––––– ––––––
610 1,200
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Equity and liabilities
Share capital and reserves
Share capital ($1 Ordinary shares) 370 900
Retained earnings 170 69
––––– ––––––
540 969
Non-current liabilities
10% Loan note – 80
Current liabilities
Trade payables 60 120
Interest payable – 1
Income tax 10 70 30 151
––––– ––––– –––––– –––––
Total equity and liabilities 610 1,200
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The market price for each share for each company: $1.60. $1.50

Analyze the performance of both companies using the following ratios:
Current ratio
Return on capital employed
Receivables collection period
Inventory turnover period
Interest cover ratio
Debt to Equity ratio (Show all workings)

Answer rating: 100% (QA)

Current Ratio Edgechem Ltd 61070 871 Beauticolour Lt... View the full answer