Over 50% is deemed too high and may leave the business at high risk if interest increases, as loans have to be paid whereas dividends don't have to be.
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ROCE Interpretation
Should be well above bank interest rates- over 20% is an acceptable level.
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Gearing Ratio Definition
Shows the balance between loans with interest to be paid and equity with dividends to be paid.
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ROCE Definition
Compares the profit made to the amount of finance invested.
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Limitations of Ratio Analysis
Markets and firms can change a lot, Comparisons between firms depend on their similarity and if their valuing methods are the same, Accounts may be inaccurate.
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Methods of Window Dressing
Change accounting policies, Revalue property, Manipulate current assets and liabilities, Manipulate revenue recorded.
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Why is Window Dressing used?
Attract shareholders, Raise new capital from investors, Making accounts look worse could help the business avoid tax.
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Other cards in this set
Card 2
Front
Non-current liabilities + Total equity
Back
Capital Employed Formula
Card 3
Front
Operation profit/ Capital employed x 100
Back
Card 4
Front
They show the company's ability to pay its bills.
Back
Card 5
Front
Over 50% is deemed too high and may leave the business at high risk if interest increases, as loans have to be paid whereas dividends don't have to be.
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