Mathematical Findings

TYPE, NAME OF RATIO CALCULATION METHOD

A
3.57

B
1.50

REMARKS

Current Liquidity Quick

Cur. Assets / Cur. Liabilities (Cur. Assets - Stocks) / Cur. Liabilities LT Liabilities / (LT Liabilities + Share Capital + Reserves) % (Profit before interest + Tax) / Fixed Interest Expense

A more able to pay ST liabilities A stronger in liquidity B less risky w.r.t. liabilities B profits higher to cover interest A clears stock sooner, better SALES B clears debt sooner, better FINANCE B pays debt sooner, better FINANCE B shareholders gain much higher B shareholders utilize higher A OPS performance slightly better A prices better for higher profit

2.14

0.75

Gearing Solvency Interest Coverage Average Stock Turnover Activity Debtor Collection Creditor Payment Return on Owner Return on Capital Employed Net Profit for Sales Asset Turnover

37%

14%

29.57

Inventory / Cost of Sales *365 [(Opening Balance + Closing Balance)/2] / Sales *365 Average Creditors / Purchases *365 Profit after interest and tax / Shareholders Equity % Profit before interest and tax / (Shareholders Capital + Reserves + LT Loans) % Profit before interest and tax / Sales % Sales / Total Assets %

54.75

97.33

94.9

18.25

41.71

63.27

43%

111.11%

22.64%

41.40%

Profitability

12%

10.35%

149.25%

222.22%

Remarks
A has a much stronger position in terms with assets and liquidities, which makes it a securer concern for banks to give loan. In terms of liabilities and profits against interest expenses, B is a stronger company and more solvent. A has got a good sales team that clears stocks much quicker than B. B has got a significantly better and more efficient finance team that collects debts much quicker than clearing own loans, thus maintains higher presence of cash at the business unlike A. B from stakeholders point of view is a much profitable company and is potentially attractive for pulling in new investments. A in terms of pricing and operational performance has a slightly better standing than B.

Given Information
ACCOUNTS A LTD., K B LTD., K

1. Current Assets 2. Current Liabilities 3. Stocks 4. Long-term Liabilities 5. Share Capital 6. Reserves 7. Profit before Interest 8. Tax 9. Fixed Interest Expense 10. Inventory 11. Cost of Sales 12. Opening Balance 13. Closing Balance 14. Sales 15. Average Creditors 16. Purchases 17. Profit After Interest and Tax 18. Profit Before Interest and Tax 19. Shareholders Equity 20. Total Assets

500 140 200 200 230 100 120 0 20 30 200 110 150 1000 80 700 100 120 230 670

600 400 300 70 180 250 207 0 7 80 300 0 100 2000 260 1500 200 207 180 900