Hi, can I have a question on accounting ratios please: 1. CT2 Sep 2015/8 A company's directors are considering manipulating their current ratio by delaying the payment of trade payables that would normally occur before the year end, until some time after the year end. Which of the following statement is correct? Answers: if the company has a positive bank balance and a current ratio of less than 1:1 then the current ratio will be increased and if the company has a positive bank balance and a current ratio of more than 1:1 then the current ratio will not be increased
another question please 2. CB1 ASET Apr 2019/19 A general question on those ratio big questions: when calculating ratios, would I get a mark for getting the formula down? (would you recommend doing this?) on part iii), the question says “explain how the inclusion of tax would have affected your understanding of Gearworks’ performance”. The answer talks about where tax would appear in the financial statements and how the ratios would be affected. I think it would reduce ROCE reduce current ratio and then went on talking about how that affected the conclusions previously drawn in ii). Is that irrelevant?
2. Picking up on the second question first: What you've done sounds relevant to me - the Examiners' Report also describes how the ROCE and current ratios would be affected and how this affects the conclusions drawn.
Hi again. For the first question, I'm not sure what you're query is? It might help to make up some numbers for the current assets and current liabilities, and try out the impact of paying trade receivables (which would decrease the current assets and current liabilities by the same amount if it paid them with cash from its bank balance)? Hope this points you in the right direction Lynn
Can you help me with understanding the following from chapter 19 notes: “ in a static or low-growth industry the converse will apply since a highly geared company is making more efficient use of the shareholder’s funds”. Why is this? Because debt is cheap and if invested in projects, it will boost return on equity, according to the formula of geared beta?
Essentially yes - the expected return on equity will be improved by more cheap (and tax-efficient) debt.
