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“…This has reduced finance costs and
interest cover; interestingly, however, as the finance cost at 10% is much lower than the 20X5 ROCE of 21.8%, it will have had a detrimental effect on overall profit available to shareholders.”
Hello,dear tutor..This is from Bpp study book page 355, paragraph ‘other issues’..
My question is that why lower interest rate than ROCE causes detrimental effect on overall profit available to shareholders? I thought higher interest rate can cause detrimental effect not lower interest.
Pls explain it for me, thanks in advance 🙂
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