- This topic has 3 replies, 2 voices, and was last updated 5 years ago by
Ken Garrett.
Ken Garrett.-
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weijiang
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In the Jun/2012 Q1 a) financial position analyse
ROCE has dropped from 24.14% to 6.45% which is 17.69% in 4years. It was due to the increased long term bank loan, decreased revenue caused by the competition from oversea cheap products and increased labor cost worsened the PBIT.It should be a concern for the shareholders and company.My question is how shareholders and company is going to be affected ?
It is a family business it is unlikely they may withdraw their investment since they are the only shareholders.Only affect I could come up with was the wealth of the shareholder may decrease.
The affect to company it may have a significant impact on the ability to generate finance to support the day to day operation & future
development.I am not sure what my answer were sufficient and relevant .
Ken Garrett
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Your points are fine. Family companies are usually more patient than listed companies when considering ROCE.
It will affect wealth because interest hss to be paid out of poor profits before dividends. Raising more finance is also likely to be more difficult.
weijiang
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Thank you for your explanation!
I wonder how would u like to answer the significant of the ROCE in the real exam under the time pressure in order to score the marks, please.
The official answer there were not any significant of the ROCE was mentioned.Ken Garrett
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I think I would simply mention that it was a disappointing trend and will make it difficult to raise finance in the future.
Ken Garrett- You must be logged in to reply to this topic.