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Discuss which one engages on competitive prices

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Mumba and Chikosi are both engaged in retailing as soles traders, but seem to take a different approach to trading. The following information has been calculated in respect of both businesses.

Ratio                              Mumba                          Chikosi

Current ratio                    2:1                      1.5:1

Acid test ratio                  1.7:1                   0.7:1

Return on capital employed      20%                  12%

Trade receivables settlement period 63 days         21 days

Trade payables settlement period   58 days               45 days

Gross profit margin                     40%                        15%

Operating profit margin              10%                        10%

Inventories turnover period         52 days                   25 days

Required:

Question (a) Describe what this information indicates about the differences in approach between the two businesses

Question (b) If one of them prides itself on personal service, and one of them on competitive prices. Which business do you think engages in personal service and which one engages on competitive prices? Give reasons for your answer?

Reference no: EM132519733

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