Financial Management Question (1 Viewer)

[reggie7]

Okay so we got this multiple choice question in our Trial Exam and we're having a postmortem. This question has caused debate:

The following includes ratios of Bill's Pet Shop for 2008 and 2007:



Gearing ratio --- 0.5:1 (2008) 1.3:1 (2007)
Expenses ratio --- 37% (2008) 22% (2007)


Describe the store's financial position in 2008 compared to 2007.

(a) Low Solvency & High Efficiency
(b) High Solvency & High Efficiency
(c) Low Solvency & Low Efficiency
(d) High Solvency & Low Efficiency

If possible I'd like a number of answers and opinions please because I lost a mark for this and I'd like to describe to the teacher the correct answer.

 

[baraka003]

a.
gearing has improved? for every dollar of equity finance there is 50 cents of debt finance and im guessing a higher efficiency ratio is more beneficial thus high efficiency

 

[Michaelmoo]

a.
gearing has improved? for every dollar of equity finance there is 50 cents of debt finance and im guessing a higher efficiency ratio is more beneficial thus high efficiency

You're right. Gearing has improved. Efficiency hasn't though, a higher expense ratio means a greater proportion of sales goes to expenses. The answer is d.

 

[nimssyk]

Yeh its D

Becasue the Solvency was originally

$1.3 of debt to every $1 of equity

now its just 50c to $1 --> which means the business has become more solvent.

But efficiency wise in 2007

22% of the value of sales was expenses.

this has now gone up tp 37% --> which means efficiency has fallen


So def D

 

[katie tully]

Yeh its D

Becasue the Solvency was originally

$1.3 of debt to every $1 of equity

now its just 50c to $1 --> which means the business has become more solvent.

But efficiency wise in 2007

22% of the value of sales was expenses.

this has now gone up tp 37% --> which means efficiency has fallen


So def D

yeah im 50 away from dbl gold but this has set me back 200 points

devestating tbh imo

not rly

lol @ this email i got, breaking has a virus

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