Refer to Table 1.1. Calculate, for 2023, the current ratio.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. [1] (a) CR = Current Assets / Current Liabilities
2. [1] (a) 0.6 / 0.8 = 0.75:1
3. [1] (a) Accept 0.75 OR 3:4 or ¾
4. [1] (b) ROCE = Profit from operations / capital employed × 100
5. [1] (b) Capital employed = NCL + shareholder capital
6. [1] (b) Capital employed = issued shares + reserves + non-current liabilities
7. [1] (b) CE = 7 + 3.2 = 10.2
8. [1] (b) ROCE = 1.3 / 10.2 × 100
9. [1] (b) = 12.7% OR 13% OR 12.75%
10. [1] (b) Accept 12.7 or 13 or 12.75
11. [1] (b) Allow 12.8
12. [1] (b) 2022 ROCE is 9.9%
13. [1] (b) Accept 9.9
14. [1] (b) 1.3/3.2 x 100 = 40.6% (NCL not included in calculation of CE)
15. [1] (b) 1.3 / 7 × 100 = 18.6% (Shareholder equity not included in calculation of CE)
16. [1] (c) Meaning of converting to plc – shares publicly available on a stock exchange.
17. [1] (c) Process of becoming a PLC will include issuing a prospectus and having the share issue underwritten.
18. [1] (c) Greater finance from shareholders as a plc.
19. [1] (c) Greater divorce between ownership and control of business as a plc.
20. [1] (c) Dilution of control as plc.
21. [1] (c) Increased risk of takeover increased as plc.
22. [1] (c) Plc status and link to long term growth of business.
23. [1] (c) Reference to financial information and ratios e.g. gearing.
24. [1] (c) Greater access to external funding through debt finance.
25. [1] (c) Current gearing of 69% is high and has increased from 2022.
26. [1] (c) Capital cost of expansion plans and additional budget required for marketing.
27. [1] (c) Aluna is ambitious for OV to expand.
28. [1] (c) Operating profit margin has increased from 9% to 10.8%.
29. [1] (c) ROCE has increased from 9.9% to 12.7%.
30. [1] (c) Liquidity has declined from 0.8:1 in 2022.
31. [1] (c) Cost of going public could be very high.
32. [1] (c) Only three shareholders.
33. [1] (c) Dividends paid to shareholders unchanged at $100 000.
34. [1] (c) Gearing is high so expansion funded by borrowing would potentially be difficult
35. [1] (c) ...as banks may consider the business too risky
36. [1] (c) ...so conversion to plc could fund plans for expansion resulting in greater long-term success of OV which will benefit shareholders.
37. [1] (c) Risk of takeover is increased if convert to plc
38. [1] (c) ...and therefore Aluna and other shareholders could lose control of the business
39. [1] (c) ...and therefore prevent her from achieving her objectives for the business to be more socially responsible.
40. [1] (c) As a plc there may be increased tension between new shareholders who want high dividends / short-term profit
41. [1] (c) ...and existing shareholder goals which will prevent existing shareholders achieving their objectives.
42. [1] (c) Borrowing for expansion could result in greater reward for Aluna and other shareholders than raising capital through conversion
43. [1] (c) ...as profits made will be shared by just the existing shareholders.
44. [1] (c) Conversion to PLC will make it easier for existing shareholders to sell shares
45. [1] (c) ...and therefore make a capital gain.
46. [1] (c) A judgement over whether shareholders will benefit from conversion of OV to a plc.
47. [1] (c) What the judgement may depend on: Loss of control for existing shareholders.
48. [1] (c) What the judgement may depend on: What proportion of shares remain with the existing shareholders.
49. [1] (c) What the judgement may depend on: Likely impact on growth of OV and impact on profits.
50. [1] (c) What the judgement may depend on: Dividends paid are low. Will this be sufficient to attract shareholders who seek short term gain?
51. [1] (c) What the judgement may depend on: The potential conflict between the short-term profit objectives of new shareholders and OV's sustainability culture.
52. [1] (c) Weighing up of relevant arguments.
53. [1] (c) Short/long term impact on shareholders and the business.
54. [1] (c) Which is most important factor to shareholders?
55. [1] (c) Reliability of financial data given in Table 1.1 will impact whether new shareholders benefit.