Question

The Mototech group comprises two companies, H Co and P Co. H Co is a trading company with two divisions: The Design division, which designs wind turbines and supplies the designs to customers under licences and the Matobox division, which manufactures gearboxes for the car industry. P Co manufactures components for gearboxes. It sells the components globally and also supplies H Co with components for its Motobox manufacturing division.

The financial results for the two companies for the year ended 31 May 2017 are as follows:

		H Co		P Co
	Design division		Motobox division
	$000		$000	$000
External sales	14,300		25,535	8,010
Sales to Motobox division				7,550
				15,560
Cost of sales	(4,900)		(16,200)*	(5,280)
Administration costs	(3,400)		(4,200)	(2,600)
Distribution costs			(1,260)	(670)
Operating profit	6,000		3,875	7,010
Capital employed	23,540		32,320	82,975

• Includes cost of components purchased from P Co.

Required:

Discuss the performance of P Co and each division of H Co, calculating and using the following three performance measures:

1. Return on capital employed (ROCE)
2. Asset turnover
3. Operating profit margin