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The decline in Zapf Creation’s ROCE is accompanied by a drop in revenue despite an increase in capital employed. This raises concerns about the company’s competitive standing and market share within the leisure industry. In absolute terms, the company’s current ROCE of 0.6% is not impressive, especially when compared to the industry’s average ROCE of 17%.
A contributing factor to the decrease in ROCE could be Zapf Creation’s reduction of its current liabilities to just 17% of total assets. While this move may reduce certain business risks—since suppliers or short-term creditors are now financing less of its operations—it could potentially hamper the company’s efficiency in generating ROCE as it is now funding more of its operations with its own capital.
In conclusion, these recent trends raise questions about Zapf Creation’s future performance and competitiveness within the leisure industry. The company’s declining ROCE, coupled with decreasing revenue and increasing capital employed, suggest potential challenges ahead for Zapf Creation.
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