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

Explain the concept of newsworthiness in the field of pr, Question 1: (...

Question 1: (a). A big multinational company wishes to employ a PR manager for all its PR activities. What according to you would be the advantages and disadvantages of having

Types of treasury bills, Types of Treasury Bills Treasury bills are iss...

Types of Treasury Bills Treasury bills are issued at various maturities, generally up to one year. Thus, they are useful in managing short-term liquidity. At present, the GOI (

Balance sheet and income statement, Do these two problems in Excel. Balance...

Do these two problems in Excel. Balance Sheet and Income Statement.  The following information is used for the first two problems.  Problem 1 is the income statement and problem 2

What is planning, What is Planning Internal auditors must plan the audi...

What is Planning Internal auditors must plan the audit work so as to perform the audit in an effective manner.There must be sufficient audit programmes in existence which set o

What is monopoly, MONOPOLY Several governments consider it necessary to...

MONOPOLY Several governments consider it necessary to prevent or control monopolies. A untainted monopoly exists when one organisation controls the production or supply of a go

Hedging, how does "x" company hegde itself? the company name will be shared...

how does "x" company hegde itself? the company name will be shared later.

Research and development and marketing costs, a) Product orientated busines...

a) Product orientated businesses tend to be produce products and inward looking that they hope will sell in the marketplace. For example, Sony hoped that its $101,500 audio systems

Operating cycle, #question application of an operating.cycle in vegetable g...

#question application of an operating.cycle in vegetable growing business.

Interest rates, Interest Rates The payment borrowers make for the use o...

Interest Rates The payment borrowers make for the use of the funds that they borrow and the payment that lenders demand for the use of the funds they lend (termed interest ) w

Dividend decision, Dividend Decision: The Dividend Decision is a decis...

Dividend Decision: The Dividend Decision is a decision taken by the directors of a company. It relates to the timing of any cash payments and amount made to the company's stoc

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