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Return on Capital Employed (ROCE) =   For Riccarton PLC: ROCE = 50000/380000 X 100 = 13.2%   For Edinburgh PLC: ROCE = 45000/230000 X 100 = 19.6%       Current Ratio = Current assets/current liabilities   For Riccarton PLC: Current ratio = 150/120 = 1.25

Return on Capital Employed (ROCE) =   For Riccarton PLC: ROCE = 50000/380000 X 100 = 13.2%   For Edinburgh PLC: ROCE = 45000/230000 X 100 = 19.6%       Current Ratio = Current assets/current liabilities   For Riccarton PLC: Current ratio = 150/120 = 1.25

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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  • Return on Capital Employed (ROCE) =

 

For Riccarton PLC:

ROCE = 50000/380000 X 100

= 13.2%

 

For Edinburgh PLC:

ROCE = 45000/230000 X 100

= 19.6%

 

 

 

  • Current Ratio = Current assets/current liabilities

 

For Riccarton PLC:

Current ratio = 150/120

= 1.25

 

For Edinburgh PLC:

Current ratio = 80/70

= 1.14

  • Gearing Ratio = (long term borrowing + short term borrowings) / equity

For Riccarton PLC:

Gearing ratio = (180 + 100)/200

= 1.4

For Edinburgh PLC:

Gearing ratio = (100 + 50)/130

= 1.15

  • Price/Earnings (P/E) Ratio = Share price / earnings per share

 

For Riccarton PLC:

P/E Ratio = 195/35

=5.57

 

For Edinburgh PLC:

P/E Ratio = 451/28

= 16.107

 

  1. Based on the above ratios explain, which company George H. and James W. should invest in. You should also briefly discuss the limitations of your analysis.
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