(a) Refer to Table 1 and Table 2. Calculate for 2022 the:

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. Non-current liabilities / (Shareholder Equity + NCL) × 100
2. OR
3. Debt / (Debt + equity) × 100
4. OR
5. Long term liabilities / capital employed × 100 (1 mark if no relevant calculation)
6. Capital employed = Shareholder equity + NCL = 4 + 4 +14 = ($)22(m) (1)
7. Gearing = 14 / 22 × 100 (2)
8. Gearing = 63.6% OR 63.6 OR 64 (allow 63) (3)
9. If wrong year:
10. 2021 = 56.2% OR 56.2 OR 56 (2)
11. OR
12. Long term liabilities / equity × 100 (1 mark if no relevant calculation)
13. (Accept equivalent variations of this equation)
14. Gearing = 14 / 8 × 100 (2)
15. Gearing = 175% OR 175 (3)
16. If wrong year:
17. 2021 = 128% OR 128 (2)
18. Other likely answers
19. 14 / 18 x 100 = 77.7 OR 77.8 OR 78 (%) (2)
20. Answer based on 14 / any number × 100 e.g.14 / 28 × 100 = 50 (2) As long as gearing equation is correctly stated.
21. OFR
22. dividend yield = dividend per share / market share price × 100 (1 mark if no relevant calculation)
23. Dividend per share = 4.8 / 8 = ($)0.60 per share (1) OR
24. DY = 0.6 / 3 × 100 (1)
25. DY = 20% OR 20 (2)
26. 2021: Award 1 mark for DY = 4.4 / 8/3 × 100 = 0.55 / 3 × 100 18.3% OR 18.3 (although share price not known for 2021)
27. profit margin = profit / revenue × 100 (1 mark if no relevant calculation)
28. PM = 5.6 / 60 × 100 (1)
29. PM = 9.3% OR 9.3 (2)
30. If answer given for 2021: 12.8% OR 12.8 (1)
31. Knowledge
32. Ratios help identify the financial health of the business
33. Understanding of ratios
34. Gearing - proportion of capital financed by debt
35. Dividend yield – how much a company pays out in dividends relative to its share price
36. Profit margin – measures a company's earnings relative to revenue
37. Current/acid test – measure of liquidity
38. Understanding of sources of finance
39. From working capital
40. Loans - debt finance with interest
41. Share capital – selling shares to shareholders
42. Retained profit – internal source of finance from profit not paid in tax or distributed to shareholders
43. Application
44. Using case information or calculations:
45. Current gearing is high - above 50%. Link to expansion plans
46. Further borrowing for expansion and predicted decrease in interest rates
47. There are 12m unissued shares, current share price is $3. Could raise around $36m
48. Profit margin has decreased from 12.8% to 9.3%
49. Link to Dividend per share is $0.60
50. Use of DY is 20%
51. Use of Current ratio = 2021 = 5.1 / 3.6 = 1.42: 1, 2022 = 5.8/4.2 = 1.38: 1
52. Use of Acid test ratio = 2021 = 1.9/3.6 = 0.53: 1, 2022 = 1.8/4.2 = 0.43: 1
53. Linking to options for growth
54. Purchase Lacpac
55. Expansion into country S by building a factory and contracts
56. Reference to Amandi currently having a controlling stake in the business
57. Analysis
58. Gearing high so expansion funded by borrowing would potentially be difficult as banks may consider the business too risky.
59. High gearing means that successful expansion financed by further debt can produce significant increase in returns to shareholders.
60. Issuing shares would impact control of the business and reduce Amandi's influence.
61. High dividend yield would be attractive to potential shareholders making a share issue successful.
62. Profit margin has fallen making the business less attractive to invest in.
63. Growth of business over time may make investment attractive to either shareholders or financial institutions.
64. Evaluation
65. A judgement of the usefulness of ratio analysis to the choice of finance.
66. Evaluation of other factors that influence choice of finance such as:
67. The business's attitude toward risk
68. Desire of Amandi to retain control may be crucial
69. Interest rate on debt finance
70. Cost of issuing shares
71. Elements that the judgement of usefulness might depend on such as:
72. The reliability of the figures
73. Historical figures
74. Trend analysis of ratio results.