Bradbury Ltd is a family-owned clothes manufacturer based in the south-west of England. For a number of years the chairman and managing director was David Bradbury. During his period of office, sales revenue had grown steadily at a rate of 2 to 3 per cent each year. David Bradbury retired on 30 November 2006 and was succeeded by his son Simon. Soon after taking office, Simon decided to expand the business. Within weeks he had successfully negotiated a five-year contract with a large clothes retailer to make a range of sports and leisurewear items. The con- tract will result in an additional 2 million in sales revenue during each year of the contract. To fulfil the contract, Bradbury Ltd acquired new equipment and premises. Financial information concerning the business is given below:

Required:

(a) Calculate, for each year (using year-end figures for balance sheet items), the following ratios:
1 operating profit margin;
2 return on capital employed;
3 current ratio;

4 gearing ratio;
5 days trade receivables (settlement period); and 6 sales revenue to capital employed.

(b) Using the above ratios, and any other ratios or information you consider relevant, comment on the results of the expansion programme.

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Income statements for the year ended 30 November 2006 2007 000 000 Revenue 9,482 11,365 Operating profit 914 1,042 Interest charges (22) (81) Profit before taxation 892 961 Taxation (358) (386) Profit for the year 534 575 Balance sheets as at 30 November 2006 2007 000 000 Non-current assets Property, plant and equipment Premises at cost 5,240 7,360 Plant and equipment (net) 2,375 4,057 7,615 11,417 Current assets Inventories 2,386 3,420 Trade receivables 2,540 4,280 4,926 7,700 Total assets 12,541 19,117 Equity Share capital 2,000 2,000 Reserves 7,813 8,268 9,813 10,268