Required: (a) Calculate for both years two ratios that relate to gearing. Show your workings. (b) Discuss the ratios calculated above and identify any favourable/adverse movements since 2015. (c) Discuss the problems that can arise when using ratio analysis.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Set out below are the financial statements for KLEE Inc. Limited:
Profit and Loss Accounts ($)
2015
(S000's)
2016
(5000's)
Sales
285
200
Profit before interest and tax
92
84
Interest
10
10
Profit on ordinary activities before taxation
82
74
Тахабоn
32
29
50
Profit on ordinary activities after taxation
Dividends
Retained profit
15
15
35
30
Balance Sheets ($)
Fixed Assets
Fixed Assets
24
58
Current Assets
Stock
25
20
Debtors
Cash
21
20
3
49
48
Current Liabilities
Trade Creditors
18
18
Тахafon payable
Proposed dividend
11
8
15
15
42
41
Net Current Assets
7
5
31
61
Creditors: Amounts falling due after more than one year
10% Debentures
10
10
Total Net Assets
21
51
Shareholders' Funds
Share Capital
Profit and loss account
5
5
18
48
21
51
Transcribed Image Text:Set out below are the financial statements for KLEE Inc. Limited: Profit and Loss Accounts ($) 2015 (S000's) 2016 (5000's) Sales 285 200 Profit before interest and tax 92 84 Interest 10 10 Profit on ordinary activities before taxation 82 74 Тахабоn 32 29 50 Profit on ordinary activities after taxation Dividends Retained profit 15 15 35 30 Balance Sheets ($) Fixed Assets Fixed Assets 24 58 Current Assets Stock 25 20 Debtors Cash 21 20 3 49 48 Current Liabilities Trade Creditors 18 18 Тахafon payable Proposed dividend 11 8 15 15 42 41 Net Current Assets 7 5 31 61 Creditors: Amounts falling due after more than one year 10% Debentures 10 10 Total Net Assets 21 51 Shareholders' Funds Share Capital Profit and loss account 5 5 18 48 21 51
Required:
(a) Calculate for both years two ratios that relate to gearing. Show your workings.
(b) Discuss the ratios calculated above and identify any favourable/adverse movements
since 2015.
(c) Discuss the problems that can arise when using ratio analysis.
Transcribed Image Text:Required: (a) Calculate for both years two ratios that relate to gearing. Show your workings. (b) Discuss the ratios calculated above and identify any favourable/adverse movements since 2015. (c) Discuss the problems that can arise when using ratio analysis.
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