Company X is an old-established clothing retailer. The company operates from expensive city centre premises and offers a high standard of customer service. The company’s customers are willing to pay top prices so as to shop in comfort and many of them take advantage of the generous credit terms available.
Company Y is a recently-established clothing retailer. The company operates from a self-service store on the outskirts of the city and has comparatively few employees. The company’s “no frills” approach appeals to customers who wish to buy clothes as cheaply as possible. In general, customers are encouraged to pay for their purchases immediately, but certain regular customers have a monthly account with the company.
Required:
Explain how these differences between Company X and Company Y might be reflected in their accounting ratios.
