... high and return on capital employed (ROCE) is low. Holding of stock for a building and construction company is essential but it can cost a lot. 'A rule of thumb puts the costs of holding stock for one year in the region of 25p for every £1 of stock held.'8 Financing can be improved by maintaining a balance between debt and equity. The company is in a position to raise finance through debt and pay off the interest on borrowing too. The company should lower its stock and keep it up to an acceptable lower level consistent with risks involved. This would lower costs and make it profitable for company bringing an increment in ROCE. APPENDIX A Year' 2003 Current ratio = Current assets / Current liabilities = 979,705,000 / 269,360,0009 = 3.64 Working Capital = Current assets - Current liabilities = 979,705,000 - 269,360,00010 = 710,345,000 Return on Capital employed = 25.3%11 Gearing = 23.3%12 Interest cover = Net profit ...

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