LWM carries out batch production to manufacture car tyres in 15 different sizes. In the previous year, LWM sold 60 million tyres, of which 40 million were the most popular size. The Finance Director has been examining the financial figures shown in Table 1. She stated: ‘Liquidity is important. I need to use some ratio analysis to assess business performance. In the year before, our Return on Capital Employed was 33%.’ The directors are concerned about stronger competition, yet they are unable to agree on the best response for LWM.
(a)[2]
What does the term ‘liquidity’ mean?
(b)[2]
Identify two reasons why a director may wish to assess business performance.
(c(i))[2]
Calculate the Return on Capital Employed (ROCE) in 2016.
(c(ii))[2]
Explain what this result indicates about LWM’s performance.
(d)[6]
Identify and explain one advantage and one disadvantage of batch production for LWM.
(e)[6]
Explain two ways LWM could respond to increased competition. Recommend which response LWM should choose. Justify your answer.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “The ability of a business to settle short-term or day-to-day debts” …