Threads Limited manufactures nuts and bolts which are sold to industrial users. The abbreviated accounts for 19X8 and 19X7 are given below.

Note2 The bank loan was taken upon 1 J uly 19X7 and is repayable on 1 J anuary 19X3. It c arries a fixed rate of interest of 12% per annum and is secured by a fixed and floating charge on the assets of the company.

(a) Calculate the following financial statistics for both 19X8 and 19X7, using end of year figures where appropriate.
(i) Return on capital employed (ii) Net profit margin (iii) Gross profit margin (iv) Current ratio (v) Liquid ratio (acid-test ratio)
(vi) Day’s debtors (vii) Day’s creditors (viii) Stock turnover ratio

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

(c) What action could a suppher take to lessen the risk of not being paid should Threads Limited be in financial difficulty?

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Profit and Loss Account for the year ended 30 June 19X8 19X7 000 000 000 000 Sales 1,200 1,180 Cost of sales (750) (680) Gross profit 450 500 Operating expenses (208) (200) Depreciation (75) (66) Interest (8) (291) Profit before tax Tax Profit after tax Dividend - proposed Retained profit for year Fixed assets (note I) Current assets: Stocks Debtors Cash = (72) Balance Sheet as at 30 June 19X8 19X7 000 000 000 000 687 702 236 148 156 102 4 32 396 282 159 (48) (70) (266) (80)