Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2010 and 2009 are as follows.

Required:
(a) Assuming that all sales and purchases are on credit, and that the interest expense relates to the long-term debt, calculate the following financial ratios for 2009 and 2010 (using year-end figures for balance sheet items):
(i) Return on capital employed
(ii) Operating profit margin
(iii) Gross profit margin
(iv) Current ratio
(v) Acid test ratio
(vi) Collection period for receivables
(vii) Payment period for payables
(viii) Inventory turnover period.
(b) Comment on the performance of Threads Limited from the viewpoint of a business considering supplying a substantial amount of goods to Threads Limited on usual credit terms.

Transcribed Image Text:

Threads Limited Income Statements for the year ended June 30, 2010 2009 (in $ thousands) 1,200 450 Sales Less: Cost of goods sold Gross profit Operating expenses Depreciation Interest Earnings before taxes Income tax expense Net income 1,180 500 208 200 75 -8-291 _-256 234 159 48 154 Threads Limited Balance Sheets as at lune 30 2010 2009 in $ thousands) Current assets Cash Accounts receivable Inventory Total current assets Property, plant, and equipment (net)60 Total assets Current liabilities Bank overdraft Accounts payable Income taxes payable Other accrued liabilities Total current liabilities 156 102 236 14 396 253 1083 955 22 8 76 60 24 40 238 199 Long-term liabilities Bank loan 50 Total liabilities 288 199 Shareholders' equity Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity1.083 500 500 295 256 795 756 955