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What effect does the issue of preference irredeemable shares has to ROCE and Gearing ratio? does the ROCE and GEARING RATIO increases or decreases?
Although there is no fixed ‘rule’, preference shares are normal treated as debt borrowing when calculating the gearing ratio – so the gearing would increase.
With regard to the return on capital employed, due to the above it would decrease.
hi John,,
1)Why we use Profit before tax while calculating ROCE not profit after tax??
2)Gross profit on a sale was 800? What does it mean?
3)Quick ratio and acid ratio how must it be – 1;1 or >
which of the good?4)which ratio how well the operations of business have been managed
a)Asset turnover
b)gearing c)profit margin?5)proposed dividend how it affest to curret ratio?
After proposing a final dividend Co has current ratio 2
If the company noe uses its positive balance to pay that final dividend what will be the effect upon?
increse or decrease??
John, i thought that proposed divident decreases equity and liability decreases/ Is it right??
gabriell: have you watched my free lectures, because the answers to all of these are covered in the lectures!!
1) Because we are measuring how well the business is managed – we do not control the rate of tax (watch the lecture on chapter 26)
2) Gross profit is selling price less cost of sales (watch the lecture on chapter 2)
3) Usually >1:1 because otherwise we might have problems paying bills (watch the lecture on chapter 26)
4) (a) and (c) (watch the lecture on chapter 26)
5) proposed dividends will not affect anything. We do not account for dividends at all until they are certain (i.e. have been voted on) (watch the lecture on chapter 13)Dear John,
I have a such qws
I cant remember
liqudity ratios
Accounts reseivable turnover
I confuse them if it is Sales/reseivale or receiable/sales?
Thanksvalid reasons increase turnover ratio one year to next??answer is a and b
a)Obsolete goods – please explain why
b)a slow down trading please explain why
c) Seasonla fluctuans in orders/ why not?John, in above ziezzie asked qws
But it must be concerned with equity not debt borrowing. because it is irredimable
Second question:
Are you sure that you have typed the whole question?
(because I am not sure it is possible to answer on just what you have typed).Except that seasonality occurs over a year (maybe summer does better than winter) so from year to year it will not have any effect).
Which two of the following are valid reasons why the inventory turnover period of a company increses from year to next?
answer is a slow down in trading
obsolete goodsMy qws is why these increase inventory turnover?
and high inventory turnover is good or bad?Now it makes more sense (you did not write inventory turnover before!!!)
Inventory turnover is cost of sales / inventory.
If trading is slowing down then the inventory will be falling. We normally use the inventory at the end of the year, and so this will be lower. If this is lower then the inventory turnover will be higher.
Obsolete goods in inventory will be valued at a lower price (because the net realisable value will be lower than cost). So again, if inventory is lower then inventory turnover will be higher.
As to whether inventory turnover being high is good or bad – it depends on the reason for it. If it because inventory is lower because we were holding too much and now we are controlling it better – then it is good.
If it is because trade is slowing down (as in your question) then it is not good.You cannot automatically say ‘good’ or ‘bad’ – it depends on the reasons.
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