Mackeral plc’s capital employed as at 30 June 2011 is £7.5 million. A summary of their Statement of income appears. 

Directors are proposing to raise £1.5 million additional capital by a share issue and expect that their performance next year will be as shown.

Assuming that their expectations materialise:

Required:

(a) Calculate for each of two years the return on capital employed, identifying how much of the improvement arises from asset turnover and how much from the improvement in operating profit margin, and

(b) explain how exactly the directors are planning to improve the company profitability.

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Statement of income year ended 30 June 2011 Sales revenue Cost of sales Gross profit Expenses Operating profit £'000 16,425 (9,855) 6,570 (3,942) 2,628