The management of Hove Ltd has calculated the following statistics from its results for the year ended 31 December 2014. Equivalent average figures from a relevant trade association are also given.

	Hove Ltd	Trade average
Gross margin	50%	40%
Net margin	10%	8%
Return on capital employed	16%	12%
Acid test	1:1	1.5:1
Gearing	80%	30%

(a) Explain the significance of, and the basis of calculation for, each of the five statistics listed above.
(b) Explain why, if you were informed that Hove Ltd’s current ratio was 6:1, compared with a trade average of 2:1, this might not indicate a satisfactory situation.

Answer rating: 100% (QA)

a Gross margin This is the percentage of sales that is profit For Hove Ltd this is 50 For the trade ... View the full answer