You are considering investing in one of two companies. You only have access to the following information.
|Company A||Company B|
|Return on Capital Employed||18.5%||18.9%|
|Earnings per share||23p||23p|
|Trade payables period||49 days||39 days|
- a)Which of the two companies would you be inclined to invest in? Give reasons for your choice.
- b)What further information would you require before making a final decision?
Q2 Bentley Trading
Bentley Trading plc is a company which uses a variety of component parts in its manufacturing operations. As the current supplier has recently gone into liquidation Bentley is seeking an alternative supplier. Two companies have been identified as potential suppliers. Both companies prepare accounts in Sterling and both have a year end of 31 January. Bentley has obtained copies of the published accounts for both companies.
- a)Calculate the following ratios:
- b)With reference to the ratios discuss which would be the most reliable source of supply.
- c)Identify what further information would be required before a final decision could be taken.
|X Ltd||Y Ltd|
|Income Statement for the year to 31 January 2011|
|Cost of sales||3,840||4,240|
|Profit before interest and tax (PBIT)||1120||990|
|Profit before taxation||1,070||640|
|Statement of financial Position as at 31 January 2011|
|Long term Loan||500||3,500|