LWM makes car tyres in 15 different sizes using batch production. Last year LWM sold 60 million tyres including 40 million tyres of its best-selling size. The Finance Director has been looking at some financial data as shown in Table 1. She said: 'Liquidity is important. I need to do some ratio analysis to measure business performance. In the previous year our Return on Capital Employed was 33%.' The directors are worried about increased competition but they cannot decide on the best way for LWM to respond. Table 1: Extract of financial data for 2016 ($m) Revenue 3000 Profit 1000 Non-current liabilities 2000 Capital employed 4000

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [2] ability of a business to pay back its short-term OR day to day debts
2. [2] ability of a business to pay its current liabilities using its current assets
3. [2] A measure of how quickly you can turn (current) assets into cash to pay short term debts
4. [1] whether business can pay its debts OR how easily is it to convert assets to cash OR Amount of cash available
5. [1] See how well meeting objectives OR see how well business is doing OR indicates what a business objective might be e.g. level of profitability or levels of sales or productivity
6. [1] Aid decision making OR Identify strengths and weaknesses OR Identify what needs to be done to improve OR practical examples such as to determine rewards for employees
7. [1] Way to compare with competitors
8. [1] To compare with previous years OR Spot trends
9. [1] Report to shareholders
10. [2] 25 or 25%
11. [1] profit / capital employed *100
12. [1] 1000 / 4000
13. [2] ratio has fallen [1] which shows that profitability fallen OR not using capital as efficiently as last year
14. [2] ratio fallen from 33% to 25%
15. [2] for every $100 invested the business generates $25 in profit
16. [1] not as good
17. [1] Flexible OR easy to switch production [k]
18. [1] to help meet changes in demand [an]
19. [1] for the 15 different sizes [app]
20. [1] Variety of products [k]
21. [1] leading to possibly more sales [an]
22. [1] of tyres [app]
23. [1] Some variety in workers' jobs [k]
24. [1] Some economies of scale [k]
25. [1] helping reduce unit cost [an]
26. [1] Less effect on production if machinery breaks down [k]
27. [1] Spread risk as not focusing on only one type of product [k]
28. [1] Time lost switching OR reset machines between batches [k]
29. [1] could lead to lower productivity / lost output [an]
30. [1] A fault with one product is likely to affect entire batch [k]
31. [1] which could increase waste [an]
32. [1] Inventory (Stock) may be sitting around between stages [k]
33. [1] Added cost of moving OR storing semi-finished goods [k]
34. [1] Demotivating for employees as work is repetitive [k]
35. [1] Introduce new products [k]
36. [1] as its main product accounts for 66% of its sales [app + an]
37. [1] Lower prices [k]
38. [1] for its 15 different sizes [app]
39. [1] customers might want cheaper products [an]
40. [1] Merge or takeover [k]
41. [1] with another tyre company [app]
42. [1] which would increase its market share [an]
43. [1] Advertise OR use promotion [k]
44. [1] to raise awareness [an]
45. [1] of its tyres [app]
46. [1] Keep costs low [k]
47. [1] so able to offer more competitive prices [an]
48. [1] Keep improving existing products OR quality [k]
49. [1] allowing them to stay ahead of the competition [an]
50. [1] Provide good customer service [k]
51. [1] so that customers want to keep buying from them [an]