I. Jiang (Western) Ltd has recently produced its financial statements for the current year. The directors are

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I. Jiang (Western) Ltd has recently produced its financial statements for the current year. The directors are concerned that the return on capital employed (ROCE) had decreased from 14 percent last year to 12 per cent for the current year.

The following reasons were suggested as to why this reduction in ROCE had occurred:

1 An increase in the gross profit margin;

2 A reduction in sales revenue;

3 An increase in overhead expenses;

4 An increase in amount of inventories held;

5 The repayment of some borrowings at the year end; and

6 An increase in the time taken for credit customers (trade receivables) to pay.


Required: Taking each of these six suggested reasons in turn, state, with reasons, whether each of them could lead to a reduction in ROCE.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Financial Accounting For Decision Makers

ISBN: 9781405888219

5th Edition

Authors: Dr Peter Atrill, Eddie Mclaney, Sin Autor

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