Question: 5 . 2 . The bank has informed the directors that they will be required to submit Damant Limited s financial statements for the year
The bank has informed the directors that they will be required to submit Damant Limiteds financial statements for the year ending March as well as for each subsequent year within the loan term. This is necessary as the bank intends to calculate key financial ratios, including liquidity, interest cover, and gearing ratios, on an annual basis. The directors are uncertain about how to calculate these ratios and have sought your assistance in understanding why the bank may be interested in this information. Damant Limited currently pays interest on its longterm borrowings. The extracts of Damant Limiteds financial statements for the year ended March are provided below: Damant Limited Extract of Statement of profit or loss for the year ended March R Revenue Cost of sales Gross profit Operating expenses Damant Limited Extract of Statement of financial position as at March Noncurrent assets R Property, plant and equipment Intangible assets Financial investment Current assets Inventory Trade receivables Cash Equity Ordinary share capital Revaluation surplus Current liabilities Trade payables Accruals Tax payable REQUIRED: Using the extracts from Damants financial statements provided above, answer the following. Calculate liquidity ratios and explain why AMD Bank is interested in each ratio round off answer to two decimal places Marks Calculate the interest cover and capital gearing ratio round off answer to two decimal places and explain why AMD Bank is interested in each ratio.
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