LWM manufactures car tyres in 15 different sizes by means of batch production. In the previous year, LWM sold 60 million tyres, and 40 million of these were the best-selling size. The Finance Director has been examining some financial information shown in Table 1. She commented: ‘Liquidity is important. I need to carry out ratio analysis to assess business performance.’ In the year before that, our Return on Capital Employed was $33\%$. The directors are concerned about rising competition, yet they cannot agree on the best response for LWM.
(a)[2]
What does ‘liquidity’ mean?
(b)[2]
Identify two reasons why a director may want to measure 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 for LWM of using batch production.
(e)[6]
Explain two ways in which LWM might respond to increased competition. Recommend which way 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 capability to repay short-term/day-to-day debts” …