Question: Bradbury Ltd is a family-owned clothes manufacturer based in the southwest of England. For a number of years the chairman and managing director was David Bradbury. During his period of office, sales revenue had grown steadily at a rate of 2 to 3 per cent each year. David Bradbury retired on 30 November 2005 and was succeeded by his son Simon. Soon after taking office, Simon decided to expand the business. Within weeks he had successfully negotiated a five-year contract with a large clothes retailer to make a range of sports and leisurewear items. The contract will result in an additional £2 million in sales revenue during each year of the contract. To fulfil the contract, Bradbury Ltd. acquired new equipment and premises.

Required:

(a) Calculate, for each year (using year-end figures for balance sheet items), the following ratios:

(i) net profit margin;

(ii) return on capital employed;

(iii) current ratio;

(iv) gearing ratio;

(v) days receivables (settlement period); and

(vi) sales revenue to capital employed.

(b) Using the above ratios, and any other ratios or information you consider relevant, comment on the results of the expansion programme.