Question

Financial Analysis (50%)

Calculate and analyse the following ratios for two years performance for each company and compare the differences between the two companies.
1. Operating profit margin
2. Return on capital employed (ROCE)
3. Current ratio
4. Financial Gearing
5. Creditor days
6. Earnings per share (EPS)

Answer 1

Financial capital refers to the funds a company uses for its operations, while profits represent the excess of revenues over expenses. Companies can borrow funds through borrowing or issuing bonds or corporate stock, and the choice between these sources depends on various factors.

Step-by-step explanation:

Financial capital refers to the funds a company uses to finance its operations and investments. It can include cash, accounts receivable, and shareholder equity. Profits, on the other hand, are the excess of revenues over expenses and reflect the financial success of a company.

Borrowing is a process where a company obtains funds from external sources such as banks or bondholders. Bonds are debt instruments issued by companies to raise capital, while corporate stock represents ownership in a company. Firms choose between these sources of financial capital based on factors such as cost, risk, and flexibility.