Journals Coursework Example | Topics and Well Written Essays - 2000 words

Journals - Coursework Example ould consider transferring part of share premium to profits for the company to comply with the law and be able to utilize the available finances to pay dividends and as such be able to acquire further finances from shareholders. Lack of debentures and loan notes means that the company is entirely financed through share capital. Gearing ratio= (Long term debt short term debt+ bank overdrafts / shareholders equity). A high gearing ratio means the company is mainly financed through debt capital. However, low gearing ratio indicates that a company is financed mostly by share capital. The problem of financing a company mostly by share capital is that in the event of poor performance whereby a company continuously makes losses, the shareholder may decline to commit their monies further in such a business (Ariff and Hassan, 2008). Nevertheless, the company can acquire finances from other providers of capital if it has a mixed debt structure. Profitability ratios determine the ability of a business to generate profits after netting all the expenses incurred during the year. A high ratio is indicative of good performance whereas lower rate shows the business is performing poorly. These ratios include: Gross profit is difference obtained between sales turnover and cost of goods or services. The higher the gross margin, the more profit a company charges for its goods. The ratio of 0.31 is quite small in relation to sales made. This means the company is charging very low margins. This ratio captures gives the figure of how much a company makes or loses from its sales. Primarily, it indicates company’s level of performance as it accounts other components of operating income other than cost of sales. The ratio of 0.09 indicates the profits are relatively low compared to sales made. This ratio is also commonly known as quick ratio. It measures the current liquidity position of a company. This is achieved by weighing the current assets against current liabilities (Kaminski