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:

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.

Transcribed Image Text:

Income statements for the year ended 31 December Year before last £000 Revenue Cost of sales Gross profit Operating expenses Depreciation Operating profit Interest Profit before taxation Taxation Profit for the year 1,180 (680) 500 (200) (66) 234 234 (80) 154 Last year £000 1,200 (750) 450 (208) (75) 167 (8) 159 (48) 111