Reference no: EM13526619

Jiang (Western) Ltd has recently produced its financial statements for the current year. The directors are concerned that the return on capital employed (ROCE) had decreased from 14 per cent last year to 12 per cent for the current year.

The following reasons were suggested as to why this reduction in ROCE had occurred:

1 an increase in the gross profit margin;

2 a reduction in sales revenue;

3 an increase in overhead expenses;

4 an increase in amount of inventories held;

5 the repayment of some borrowings at the year end; and

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

Required:

Taking each of these six suggested reasons in turn, state, with reasons, whether each of them could lead to a reduction in ROCE.