How could the e-waste factory improve ABC's profitability ratios?

• A. Faster production would automatically double profits.
• B. Profits from recovered gold could raise gross profit margin and return on capital employed.
• C. Expanding into plastics would improve margins.
• D. Increased debt would always lower margins.

Answer: (B)

The main idea is that profitability improves when you turn waste into valuable revenue with relatively low additional cost. Recovering gold from e-waste adds extra revenue without a proportional rise in costs, so gross profit rises and, if gross profit increases while overall capital employed stays the same, the gross profit margin improves. That higher profitability then feeds into a higher return on capital employed because the firm is generating more profit from the same amount of invested capital. In short, extracting value from the waste directly boosts margins and how efficiently the business uses its capital.

Other options aren’t as reliable for boosting these ratios. Faster production doesn’t automatically double profits—costs, capacity limits, and demand can cap the gain. Expanding into plastics introduces new products with their own costs and risk, so margins aren’t guaranteed. Increasing debt can raise interest costs and isn’t guaranteed to lower margins in every case; it could even improve ROCE if the returns exceed the cost of debt, but that’s not a guaranteed outcome and isn’t about improving profitability from existing operations the way gold recovery is.