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Discussion Questions: 6.3 The fact that a business operates on a low profit leeway indicates that a small plowshare of profit is beingness produced for each $1 of sales generated. However, this does non necessarily mean that the return on capital use will be low as a result. If the planetary house has a high asset turnover than this gutter hatch for the low profit security deposit and generate a sufficient return on the assets employed. 6.7 The potential advantages of debt pay over owners equity finance from the viewpoint of the business (and owners) being: a) Debt finance is normally short-term and when repaid will not locomote the current owners share of the business profits or assets. It is short and does not dilute ownership interests. b) Interest paid on debt finance is tax deductible, whereas dividends paid on owners equity finance (shares) is not. c) The hail of debt (eg interest rate) is often lower then the cost of owners equity. d) Debt holders do not have voting rights. e) Where the return on assets is higher then the cost of debt finance, a business can improve the return to owners equity holders by the use of debt finance to improve returns (called leverage or gearing). 6.

13 (a) favourableness is concerned with financial performance (absolute or congenator returns) whereas energy is concerned with how quickly assets or liabilities are turned over. (b) positiveness Ratios * Gross Profit Margin * Net Profit Margin * Return on assets * Return on Owners Equity Efficiency Ratios * Debtors turnover * Creditors Turnover * Inventory Turnover * Total Asset Turnover (sales turnover) (c) Efficient use of resources can increase the relative return on assets or owners equity. 6.17 (a) Gross profit margin equals gross profit (sales minus cost of goods sold) divided by sales. (b) It is an important measure because without an adequate gross profit margin business is doomed to... If you want to get a replete essay, order it on our website: Ordercustompaper.com

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