Question: EEE is a software development company focused on the 'action and adventure' gaming market. EEE operated a policy of internal staff development but is struggling
EEE is a software development company focused on the 'action and adventure' gaming market. EEE operated a policy of internal staff development but is struggling to bring developers through its coding academy quickly enough to meet its contracted content production schedule. In the short-term EEE has decided to overcome this constraint on the business by accessing a network of freelance developers. Freelance developers are paid significantly more than staff. Plans are in place to invest in artificial intelligence (AI) to utilise self-learning computers to speed up the coding development time. It is EEE's intention to depreciate the software over two years. This will reduce the need for freelancers but will require EEE staff to acquire new skills and experience. The investment will take three years to complete and will be funded by a medium-term bank loan facility. The investment will be funded by bank debt and EEE expects the capital portion of the loan to be repaid in full (on an amortising basis) at the end of the three years. Dividends will continue be paid using a fixed pay-out ratio. As EEE's finance manager you have been asked to update the senior leadership team about the likely impact on EEE's financial position and performance over the medium-term. Which ratio would be expected to remain unchanged throughout the three years, assuming all other things remain equal? Solution A.Gearing ratio. B.Current ratio. C.Operating profit margin. D.Dividend cover
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