Determine finance growth and evolution, Financial Management

Assignment Help:

a) Debentures are a source of external long term (loan) finance for which interest is paid to the debenture holder. Debenture holders do not usually have voting or ownership rights in the organisation.

b) Year 2

Year 1

250 ÷ 1,000

250 ÷ 800

= 25 %

= 31.25 %

Full working out compulsory for full marks

c) The gearing ratio is a long term liquidity ratio that calculates the percentage of a firm's capital employed that comes from long-term liabilities, such as debentures. JKL Ltd. has less than 50% gearing so is considered to be comparatively safe, given the limited information given.

The firm has lower gearing in Y2 meaning that it is less susceptible to any increases in interest rates, i.e. it represents less risk. However, there is a need to benchmark this ratio with the industry norm before any firm conclusions can be prepared about the organisation's liquidity position.

d) The costs and remuneration of high gearing should be considered. For example, having high gearing during times of rising interest rates is likely to be risky (even if the economy is doing well) as the higher loan repayments will obstruct the firm's working capital. However, high gearing might be essential for a firm that lacks internal funds to finance growth and evolution.

In the case of JKL Ltd. the fall in its gearing ratio is not essentially a good thing, e.g. can JKL Ltd. afford to have higher gearing to money expansion, particularly since it has higher net profit and retained profit in Y2.


Related Discussions:- Determine finance growth and evolution

., give and explain the seven sources of finance

give and explain the seven sources of finance

Explain payback period of CHROMEX PLC, CHROMEX PLC Payback period ...

CHROMEX PLC Payback period Payback period must be based on cash flows that is the cash generated from operations and the capital invested by Chromex. Profit is different f

Explain about the corporate reorganisations, Corporate Reorganisations ...

Corporate Reorganisations This topic deals principally with mergers and takeovers. It's very highly examinable. The discussion areas overlap with business strategy paper so don

Explain the significant feature of the wealth maximisation, Explain the sig...

Explain the significant feature of the wealth maximisation The significant feature of the wealth maximisation criterion is that it considers is that it considers both the quali

Project-managing the budget process, Do a Gantts Chart, project-managing th...

Do a Gantts Chart, project-managing the Budget process. This task should contain a well designed chart with tables and discussion. Budgeting thus is identified as a project to be m

Show social and regulatory factors, Q. Show Social and Regulatory Factors? ...

Q. Show Social and Regulatory Factors? Regulatory climate and legislation against the environmental degradation may impair the profitability of the industry. Price control, vol

Show certificates of deposits, Q. Show Certificates of Deposits? Certif...

Q. Show Certificates of Deposits? Certificates of Deposits: Certificate of deposits is papers issued by banks acknowledging fixed deposits for a specified period of time. CPs i

Enumerate the internal development of any business, Enumerate the Internal ...

Enumerate the Internal development of any business or 'organic growth' Business grows using its own internal resources. - Reduces risk of the high cost of integrating cultur

Yield volatility and measurement, Measuring volatility is very impo...

Measuring volatility is very important as it is a critical input in valuation models. In subsequent chapters we will see the importance of assumed volatilit

Importance of capital budgeting decision, Q. Importance of Capital Budgetin...

Q. Importance of Capital Budgeting Decision? 1. Such Decision affect the profitability of the Firm: - Capital Budgeting decision influences the long-term profitability of a fir

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd