Response to the following problem:
Amsterdam Ltd and Berlin Ltd are both engaged in retailing, but they seem to take a different approach to it according to the following information:
Ratio Amsterdam Ltd Berlin Ltd
Return on capital employed (ROCE) 20% 17%
Return on ordinary shareholders' funds (ROSE) 30% 18%
Average settlement period for trade receivables 63 days 21 days
Average settlement period for trade payables 50 days 45 days
Gross profit margin 40% 15%
Operating profit margin 10% 10%
Average Inventories turnover period 52 days 25 days
Required:
Describe what this information indicates about the differences in approach between the two businesses. If one of them prides itself on personal service and one of them on competitive prices, which do you think is which and why?