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Question 1

Gearing ratio

Answer 1

Non current liabilities / capital employed x100

Question 2

High geared business

Answer 2

Ratio > 50%
BUSI is borrowing a lot of money to run business, too reliant on external finance
BUSI is vulnerable to interest rates
Recommend:
Focus on growth - invest in revenue growth
Convert short term debt into long term loans

Question 3

Low gearing busi

Answer 3

Using share capital or retained profit to finance busi
Recommend:
Focus on profit improvement (cost min)
Repay long term loans
Return profits rather than pay dividend

Question 4

Contribution

Answer 4

Selling price - variable costs

Question 5

ROCE

Answer 5

Return on capital employed
Net/op profit dived by capital employed x100

Question 6

More return on investment =

Answer 6

More investors
More share capital
Increase value of busi

Question 7

ROCE a03

Answer 7

• doesn’t consider external factors such as inflation
• only take quantitative data into account

+ can comp data with competitors + historical data
+