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 2004 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:
(i) net profit margin;
(ii) return on capital employed;

(iii) current ratio;
(iv) gearing ratio;
(v) days debtors (settlement period); and (vi) 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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Profit and loss account for the year ended 30 November 2004 2005 000 000 Turnover 9,482 11,365 Profit before interest and tax 914 1,042 Interest charges (22) (81) Profit before tax 892 961 Taxation (358) (386) Profit after tax 534 575 Dividend paid (120) (120) Retained profit 414 455 Balance sheet as at 30 November