# Accounting Ratio AL ans.pdf - BAFS – Accounting Ratios /...

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BAFS – Accounting Ratios / Financial analysis HKALE - Answer11.AL2008.Q1(b)(b)\$\$\$1 ordinary share capital(\$8 000 000 + \$1 200 000)9 200 000Share premium(\$1 500 000 + \$1 800 000)3 300 000General reserve600 000Retained profitsBalance b/d1 280 000Profit for the year(\$3 700 000 - \$2 000 000 x 6% - 200 000)3 380 0004 660 000Shareholders’ equity17 760 0006% debentures2 000 000Capital employed19 760 000Alternative\$\$Shareholders’ equity as at 31 December 200611 380 000Issue of 1 200 000 ordinary shares at \$2.50 each(1,200,000 x \$2.5)3 000 000Profit before interest and tax3 700 000Interest expense(\$2 000 000 x 6%)(120 000)Tax expense(200 000)Profit after tax3 380 000Shareholders’ equity as at 31 December 200717 760 000Issue of \$2 000 000 6% debentures at par2 000 000Capital employed19 760 000(1)Return on capital employed:Profit before interest and tax / Capital employed\$ 3 700 000 / \$19 760 000 = 18.72%2(2)Return on equity:Profit after interest and tax / Shareholders’ equity\$3 380 000 / \$17 760 000 = 19.03%2(3)Earnings per share: Profit after interest and tax / Number of ordinary shares\$3 380 000 / (8 000 000 + 1 200 000) = 36.74 cents2(6)Reference: Part (a) Distinguish between equity capital and loan capital:Equity capitalLoan capital- Shareholders have voting right- Debenture holders have no voting right- Dividend is an appropriation of profit- Interest is an expense- Dividend rate is not fixed- Interest rate is fixed- There is no / stipulated date for repayment of capital-Thereisastipulateddateforredemptionofdebentures- In case of liquidation, shareholders rank the last toreceive back the fund invested- Debenture holders rank before shareholders in caseof liquidation(2 marks for each relevant comparison, max. 4 marks)(4)
BAFS – Accounting Ratios / Financial analysis HKALE - Answer22.AL.2009.Q4(a)(b)(a)(1)Gearing ratio [\$5 500 000 / (\$5 346 000 + \$5 500 000)]50.71%(or 0.51)1(2)Earnings per share [\$1 126 000 / (\$2 000 000 / 5)]\$2.821(3)Return on equity\$1 126 000 / {[(\$5 346 000 - \$1 126 000) + \$5 346 000] /2}23.54%(or 0.24)1(4)Return on Capital employed13.62%1[\$1 126 000 + (\$5 500 000 x 5%)] /{[\$5 346 000 - \$1 126 000 + \$5 500 000] + (\$5 346 000 + \$5 500 000) / 2 }or 0.14(4)(b)- Tai Wo Ltd is a highly geared company with half of its capital employed contributed by loan capital.

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Term
Fall
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Tags
Ratio, Capital Employed