Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2015 and 2016 are as follows:

Required:

(a) Calculate the following financial ratios for both 2015 and 2016 (using year-end figures for statement of financial position items):

1 return on capital employed 2 operating profit margin 3 gross profit margin 4 current ratio 5 acid test ratio 6 settlement period for trade receivables 7 settlement period for trade payables 8 inventories 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 trade credit terms.

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Income statements for the year ended 30 June 2015 000 1,180 (680) 500 (200) (66) 234 Sales revenue Cost of sales Gross profit Operating expenses Depreciation Operating profit Interest Profit before taxation Taxation Profit for the year Trade receivables Cash ASSETS Non-current assets Property, plant and equipment Current assets Inventories 234 Total assets EQUITY AND LIABILITIES Equity Ordinary share capital (1 shares, fully paid) Retained earnings (80) Statements of financial position as at 30 June 154 2016 000 1,200 (750) 450 (208) (75) 167 159 (48) 111 2015 000 702 (8) 148 102 3 253 955 500 256 2016 000 687 236 156 396 1,083 500 295