Presented below are a set of financial ratios provided for Recharge Ltd. The company manufactures cycle...

  
 
 

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Presented below are a set of financial ratios provided for Recharge Ltd. The company manufactures cycle components to put on racing cycles. Return on Assets Return on Equity Debt to Assets Days payables outstanding Days sales outstanding Inventory turnover (days) 2017 15% 24% 50% 15 days 43 days 25 days Further notes: - The credit terms for the company's purchases are 30 days. - The credit terms offered by the company are 40 days. - The tax rate is 30%. 2018 16% 28% 60% 16 days 42 days 20 days 2019 14% 30% 65% 17 days 43 days 30 days 2020 12% 32% 70% 17 days 50 days 12 days 2021 10% 33% 85% 17 days 70 days 10 days a) Indicate which of the following statements is most correct by placing the number in the marked square -> 1 2 34 4 To improve return on equity, a company should repurchase shares and pay back debt To maximise ROE, a company should borrow until the Debt to Assets ratio moves towards 100%. To maximise ROE, a company should continue to borrow up to a point where interest costs exceed ROA. Borrowing creates leverage that has increased ROA. b) Based on the above information, indicate which of the following statements is most correct by placing the number The level of debt in the company is not related to the ROE or ROA in the company The effect of debt and interest cost increases ROE across the period The effect of debt and interest cost decreases ROE across the period The effect of debt and interest cost decreases ROA across the period 1 2 234 3 4 c) Based on the above information, indicate which of the following statements is most correct by placing the number The company is collecting money effectively across the whole five-year period The company is collecting money more effectively towards the end of the five-year period The company is collecting money consistent with its credit terms across the whole five-year period The company is not effective in collecting money from its receivables 1 2 3 34 4 Presented below are a set of financial ratios provided for Recharge Ltd. The company manufactures cycle components to put on racing cycles. Return on Assets Return on Equity Debt to Assets Days payables outstanding Days sales outstanding Inventory turnover (days) 2017 15% 24% 50% 15 days 43 days 25 days Further notes: - The credit terms for the company's purchases are 30 days. - The credit terms offered by the company are 40 days. - The tax rate is 30%. 2018 16% 28% 60% 16 days 42 days 20 days 2019 14% 30% 65% 17 days 43 days 30 days 2020 12% 32% 70% 17 days 50 days 12 days 2021 10% 33% 85% 17 days 70 days 10 days a) Indicate which of the following statements is most correct by placing the number in the marked square -> 1 2 34 4 To improve return on equity, a company should repurchase shares and pay back debt To maximise ROE, a company should borrow until the Debt to Assets ratio moves towards 100%. To maximise ROE, a company should continue to borrow up to a point where interest costs exceed ROA. Borrowing creates leverage that has increased ROA. b) Based on the above information, indicate which of the following statements is most correct by placing the number The level of debt in the company is not related to the ROE or ROA in the company The effect of debt and interest cost increases ROE across the period The effect of debt and interest cost decreases ROE across the period The effect of debt and interest cost decreases ROA across the period 1 2 234 3 4 c) Based on the above information, indicate which of the following statements is most correct by placing the number The company is collecting money effectively across the whole five-year period The company is collecting money more effectively towards the end of the five-year period The company is collecting money consistent with its credit terms across the whole five-year period The company is not effective in collecting money from its receivables 1 2 3 34 4

Answer rating: 100% (QA)

Question Step 1 Answer A Return on equity ROE could be a live of economic performance calculated by ... View the full answer