The following information refers to GT ltd

Year 2016 2017

$'000 $'000

Net Profit 380 305

Sales 700 850

Purchases 100 250

Payables 45 80

Receivables 50 220

Closing Inventory 20 35

Current Assets 150 260

Current Liabilities 85 265

Profit before Interest and Tax (PBIT) 490 486

Return on Capital (ROCE) 14% 10%

The directors of GT Ltd are concerned that the return on capital employed has decreased from 14% to 10% for the current year. GT issued bonds to raise extra finance. Th company's cost of capital is 12%. The following reasons were suggested for the reduction in ROCE which had occurred.

1. an increase in the gross profit margin

2. a decrease in sales revenue

3. an increasing in operating expenses

4. an increase in the amount of inventory held

5. the repayment of a loan at the end of the year and

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

Required

a) Calculate the following ratios and comment on the results

1. Net Profit Margin

2. Receivables Period

3. Payables Period

4. Current ratio

5. Quick ration

b) Taking each of the six suggested reasons in turn , state , with reasons whether each of them could lead to a reduction in ROCE