J plc supplies and fits car tyres, exhaust pipes and other components. The company has branches throughout the country. Roughly 60% of sales are for cash (retail sales). The remainder are credit sales made to car hire companies and large organisations with fleets of company cars (business sales). Business sales tend to be more profitable than retail and the company is keen to expand in this area. There is, however, considerable competition. Branch managers are responsible for obtaining business customers and have some discretion over terms of trade and discounts.

The company’s computerised accounting system has recently produced the following report for the manager of the Eastown branch for the six months ended 30 September 2004:

The Eastown branch manager has only recently been appointed and is unsure whether his branch appears well managed. He has asked for your advice.

You are required to compare the performance of the Eastown branch with the average for all branches. Suggest reasons for the differences you identify.

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Eastown Average for Branch all branches Return on capital employed 22% 16% Gross profit 38% 45% Selling and promotion costs/revenue 9% 6% Wages/revenue 19% 14% Accounts receivable turnover (based on credit sales only) 63 days 52 days Inventory turnover 37 days 49 days