6.4 Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for each of the last two years are as follows:

Dividends were paid on ordinary shares of £70,000 and £72,000 in respect of the year before last and last year, respectively.
Required:

(a) Calculate the following financial ratios for both years (using year-end figures for statement of financial position items):
■ return on capital employed ■ operating profit margin ■ gross profit margin ■ current ratio ■ acid test ratio ■ settlement period for trade receivables ■ settlement period for trade payables ■ inventories turnover period.

(b) Comment on the performance of Threads Limited from the viewpoint of a business considering supplying a substantial amount of goods to Threads Limited on usual trade credit terms.

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Income statements for the year ended 31 December Year before last Last year 000 000 Revenue 1,180 1,200 Cost of sales (680) (750) Gross profit 500 450 Operating expenses (200) Depreciation (66) Operating profit 234 Interest (-) Profit before taxation 234 (208) (75) 167 (8) 159 Taxation Profit for the year 154 (80) (48) 111 Statements of financial position as at 31 December Year before last Last year 000 000 ASSETS Non-current assets Property, plant and equipment 702 687 Current assets Inventories 148 236 Trade receivables 102 156 Cash 3 4 253 396 Total assets 955 1,083 EQUITY AND LIABILITIES Equity Ordinary share capital (1 shares, fully paid) 500 500 Retained earnings 256 295 756 795