Income statements for the year ended 30 June 2006 2007

£000 £000 Revenue 1,180 1,200 Cost of sales (680) (750)

Gross profit 500 450 Operating expenses (200) (208)

Depreciation (66) (75)

Operating profit 234 167 Interest (–) (8)

Profit before taxation 234 159 Taxation (80) (48)

Profit for the year 154 111 Balance sheets as at 30 June 2006 2007

£000 £000 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 Ordinary share capital of £1 (fully paid) 500 500 Retained earnings 256 295 756 795 Non-current liabilities Borrowings – Bank loan – 50 Current liabilities Trade payables 60 76 Other payables and accruals 18 16 Taxation 40 24 Short-term borrowings (all bank overdraft) 81 122 199 238 Total equity and liabilities 955 1,083 Dividends were paid on ordinary shares of £70,000 and £72,000 in respect of 2006 and 2007, respectively.

Required:

(a) Calculate the following financial ratios for both 2006 and 2007 (using year-end figures for balance sheet items):

(i) return on capital employed

(ii) operating profit margin

(iii) gross profit margin

(iv) current ratio

(v) acid test ratio

(vi) settlement period for trade receivables

(vii) settlement period for trade payables

(viii) inventories turnover period.

272 EXERCISES