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Ratios have been produced below for EF for the year to 31 March:
Which TWO of the following could explain themovement in both gearing and ROCE?
Suggested Answer: A, B, C, D
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33 comments · newest first
EU
Eun
11 months ago
A bank loan would increase gearing for sure.
SA
Salome
11 months ago
Not sure about the bonus issue affecting gearing.
RH
Rhea
11 months ago
Surprised that a revaluation could affect both ratios!
HA
Hana
12 months ago
I think a debt issue makes more sense for ROCE changes.
AL
Allene
12 months ago
A rights issue can definitely impact gearing.
YU
Yuki
1 year ago
I feel like a bonus issue wouldn't really change gearing, but it might have some effect on ROCE. I need to think this through more.
SH
Shenika
1 year ago
A bank loan for new machinery seems like it would increase gearing, but I'm not sure how it would influence ROCE.
RO
Royal
1 year ago
I remember practicing a question similar to this where a revaluation impacted ROCE, but I can't recall if it also affected gearing.
LO
Louann
1 year ago
I think a debt issue could definitely affect both gearing and ROCE, but I'm not entirely sure how a rights issue would fit in.
FR
Freida
1 year ago
Okay, I've got a strategy here. I'll start by defining gearing and ROCE, then consider how the given events could influence the components of those ratios. That should help me identify the two most likely explanations.
AL
Alline
1 year ago
This is a good opportunity to apply my knowledge of financial ratios and how they're calculated. I'll need to think through how things like revaluations, share issues, and new debt would affect the numerator and denominator of each ratio.
BR
Brunilda
1 year ago
Okay, let's see here. The key is to identify the events that would affect both of those metrics. I'm thinking a rights issue or debt issue could do it, but I'll need to double-check the definitions.
ST
Stevie
1 year ago
Hmm, this looks like a tricky one. I'll need to carefully analyze the ratios and think through how different corporate events could impact both gearing and ROCE.
GI
Gilma
1 year ago
I'm a bit confused on this one. Gearing and ROCE are related, but I'm not sure exactly how different corporate actions would impact them. I'll need to review my notes and try to reason through the possible answers.
BE
Berry
1 year ago
I think the key here is that preferred stock has priority over common stock when it comes to earnings and assets. That makes it less risky for investors, even though common stock may have higher upside potential.
GR
Gracia
1 year ago
Hmm, this looks like a tricky one. I'll need to carefully read through each option and think about what I know about security classes.
CO
Colette
1 year ago
I heard the exam was so tough, the invigilator had to call the ROCE ambulance. Ba dum tss!
EL
Elza
1 year ago
Aha, a bank loan to purchase new machinery! That would increase assets and likely affect both gearing and ROCE. This one's got my vote.
AR
Arthur
1 year ago
A rights issue on 31 March 20X3 might also have an impact on both gearing and ROCE.
SA
Sage
1 year ago
I think a debt issue on 31 March 20X3 could also explain the movement in both ratios.
TA
Tamesha
1 year ago
I agree, a bank loan to purchase new machinery would definitely impact both gearing and ROCE.
JU
Justa
2 years ago
I'm not sure about option C and D. I think they might not have a direct impact on gearing and ROCE.
DO
Dorothy
2 years ago
A bonus issue of shares? That's like giving yourself a participation trophy. Definitely not the right answer here.
AR
Arthur
1 year ago
User 2: I agree, that could explain the movement in both gearing and ROCE.
DY
Dyan
1 year ago
User 1: I think the answer is A) A rights issue on 31 March 20X3.
FR
Frederic
2 years ago
The revaluation upwards on the head office property seems like a clear explanation for the increase in ROCE. Clever, but I'm not sure it would affect gearing.
WA
Walton
2 years ago
I agree with Hana. A rights issue and a debt issue would definitely impact gearing and ROCE.
HA
Hana
2 years ago
I think option A and B could explain the movement in both gearing and ROCE.
SH
Shawnda
2 years ago
Hmm, a rights issue would make sense as it would increase equity and reduce gearing. But a debt issue? That's a head-scratcher!
AN
Angelo
1 year ago
Bonus issue of shares might dilute ownership but not necessarily impact gearing or ROCE.
LO
Lorrine
1 year ago
A revaluation upwards on the head office property could impact ROCE positively.
GE
Gerry
1 year ago
Debt issue could increase gearing as it adds more debt to the company.
ST
Stephane
2 years ago
Rights issue would definitely increase equity and reduce gearing.