Calculate the following financial ratios for both years: return on capital employed, operating profit margin, gross profit margin, current ratio, acid test ratio, settlement period for trade receivables, settlement period for trade payables, and inventories turnover period. Also, comment on the performance of Threads Limited for trade credit.

Part (a)(i): Operating profit margin Step 1: Year ended 31 December 20X0 (£'000) Formula: Operating profit margin = Operating profitSales revenue × 100\% Sales revenue = Cost of sales + Gross profit 1000 + 500 = 1500 (£'000) Substitute: (200)/(1500) × 100\% Simplify: (200 × 100)/(1500) \% = (20000)/(1500) \% = (4)/(3) \% ≈ 13.3\% Step 2: Year ended 31 December 20X1 (£'000) Sales revenue = Cost of sales + Gross profit 1500 + 900 = 2400 (£'000) Substitute into formula: (300)/(2400) × 100\% Simplify: (300 × 100)/(2400) \% = (30000)/(2400) \% = 12.5\% Part (a)(ii): Gross profit margin Step 1: Year ended 31 December 20X0 (£'000) Formula: Gross profit margin = Gross profitSales revenue × 100\% Sales revenue = 1500 (£'000) from above Substitute: (500)/(1500) × 100\% Simplify: (500 × 100)/(1500) \% = (50000)/(1500) \% = (10)/(3) \% ≈ 33.3\% Step 2: Year ended 31 December 20X1 (£'000) Sales revenue = 2400 (£'000) from above Substitute: (900)/(2400) × 100\% Simplify: (900 × 100)/(2400) \% = (90000)/(2400) \% = 37.5\% Part (a)(iii): Current ratio Step 1: 31 December 20X0 Formula: Current ratio = Current assetsCurrent liabilities (times) Substitute: (200)/(60) Simplify: (200)/(60) = (10)/(3) ≈ 3.3 Step 2: 31 December 20X1 Substitute: (300)/(87) Simplify: (300)/(87) ≈ 3.4 Part (b): Gearing ratio Step 1: Formula (long-term debt to equity gearing): Gearing ratio = Non-current liabilitiesEquity × 100\% Step 2: 31 December 20X0 (£'000) Substitute: (100)/(200) × 100\% = 50\% Step 3: 31 December 20X1 (£'000) Substitute: (200)/(300) × 100\% = 66.7\% Comment: The gearing ratio has increased from 50% in 20X0 to 66.7% in 20X1. This indicates higher financial leverage and greater financial risk due to a relatively larger proportion of debt financing compared to equity. Non-current liabilities doubled while equity increased by 50%, contributing to the upward trend in gearing. 20X0: operating\ 13.3\%,\ gross\ 33.3\%,\ current\ 3.3;\ 20X1: operating\ 12.5\%,\ gross\ 37.5\%,\ current\ 3.4;\ gearing\ increased\ 50\%\ to\ 66.7\%