Gross margin up, ROCE down from profit growth and added debt

Steps:

• Gross margin rose from 15% to 20%, indicating higher gross profit relative to sales (formula: gross profit/sales × 100).
• ROCE fell from 9% to 6%, showing profit increased but capital employed grew faster (formula: profit/capital employed × 100).
• Increased profit boosts both ratios, but added long-term loan raises capital employed (debt + equity), diluting ROCE.
• This matches: better margins from profit growth, lower ROCE from expanded capital base.

Why C is correct:

• Profit increase raises gross margin; new loan boosts capital employed, lowering ROCE per the formula.

Why the others are wrong:

• A: Drawings affect retained earnings but not directly gross margin or ROCE ratios.
• B: Gross profit up but year profit down contradicts gross margin rise, as net profit drives ROCE.
• D: Repaying loan reduces capital employed, which would raise ROCE, not lower it.

Final answer: C