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Indicates about the differences in approach

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(a) Business A and Business B are both engaged in retailing, but seem to take a different approach to this trade according to information available. This information consists of ratios, as shown in the table below:
Ratio Business A Business B

Current Ratio 2:1 1.5:1

Quick Ratio 1.7:1 0.7:1

Return on Capital Employed [ROCE] 20.0% 17.0% Return on Owners' Equity [ROE] 30.0% 18.0% Debtors' Turnover [days] 63 days 21 days

Creditors' Turnover [days] 50 days 45 days

Gross Profit Margin 40.0% 15.0%

Net Profit Margin 10.0% 10.0%

Stock Turnover [days] 52 days 25 days

Required:

Describe what this information indicates about the differences in approach between the two businesses. If one prides itself on personal services to its clients and one of them on competitive prices, which do you think is which and why? Your answer should include a discussion on Profitability, liquidity, efficiency and debt ratio of the two businesses.

Reference no: EM133004963

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