Financial Gearing

FM – Nov 2020 – L3 – Q5 – Financial Strategy Formulation

Examines financial proposals affecting Yinko plc's capital structure, including debt-financed share buyback, asset expansion, and asset sale with debt reduction.

Question

Yinko plc operates in the hospitality and leisure industry. The board of directors met recently to discuss several financial proposals:

Proposal 1: Increase the company’s debt by borrowing an additional N100 million and use the funds raised to buy back its shares.
Proposal 2: Increase the company’s debt by borrowing an additional N100 million to invest in expanding available rooms in one of its hotels.
Proposal 3: Sell excess non-current assets in another hotel with a net book value of ₦100 million for N135 million. The funds from the sale will be used to reduce the company’s debt.

Yinko plc Financial Information:

	Amount (N Million)
Non-current assets	1,410
Current assets	330
Total assets	1,740
Equity and liabilities
Share capital (40 kobo per share par value)	240
Retained earnings	615
Total equity	855
Non-current liabilities	700
Current liabilities	185
Total liabilities	885
Total liabilities and capital	1,740

Additional Information:

Yinko’s forecasted after-tax profit for the coming year, without implementing the proposals, is N130 million.
Current share price: N3.20 per share.
Non-current liabilities include a 6% medium-term loan redeemable in seven years. Any increase in borrowing raises the coupon rate by 25 basis points on the total amount borrowed, while a reduction lowers it by 15 basis points.
Effective tax rate: 20%
Expected after-tax return on investment: 15% for new or reduced investments.

Required:

a. Estimate the impact of each proposal on the forecast statement of financial position, earnings per share, and financial gearing (Total Debt/Total Assets) of Yinko Plc. Show all calculations. (16 Marks)

b. Discuss your results. (4 Marks)

Answer

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Tags: Asset sale, debt level, EPS, Financial Gearing, Financial restructuring, Non-current Assets, share buyback
Level: Level 3

Topic: Financial strategy formulation

FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy

Discuss problems of severe financial difficulties and the impact of high financial gearing on stakeholders, excluding bondholders.

Question

(a) Explain the main problems and costs which might arise for a company experiencing a period of severe financial difficulties. (7 Marks)

(b) Describe how interested parties, other than bondholders, will be affected by high financial gearing levels, and describe what protective measures they can take. (8 Marks)

Answer

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Tags: Debt Management, Financial difficulties, Financial Gearing, Financial strategy, Protective Measures, Stakeholder Impact
Level: Level 3

Topic: Financial Distress and Bankruptcy
Series: MAY 2024

SCS – Nov 2020 – L3 – Q8 – Financial management

Calculate operating and financial gearing for GGOH and assess how these ratios impact investor decisions.

Question

Assume a 10% interest on the outstanding loan and 22% Corporate Tax.

Required:
i) Calculate the operating gearing and financial gearing for GGOH. (5 marks)

ii) Assess how these ratios could impact an investor’s decision to invest in GGOH. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate finance, Financial Gearing, Investor decision, Operating Gearing, Ratio Analysis
Level: Level 3

Topic: Financial management
Series: NOV 2020

SCS – Aug 2022 – L3 – Q5 – Financial Management

Prepare Little Bee’s financial forecast and calculate its gearing ratios, explaining their significance to Bazar.

Question

Using the additional information presented by AB Consult & Associate to the Director of Finance and Operations, Mrs. Emma Owusu-Kwakye, on 4 August, prepare the following:

i) Little Bee new forecasted Statement of financial performance after the changes that will be discussed at the board meeting on the 5 August 2022. (4 marks)
ii) Calculate the operating gearing, measured as the ratio of the percentage increase in profit before interest and tax divided by the percentage increase in sales. (2 marks)
iii) Calculate the financial gearing, measured as the ratio of the percentage change in total earnings (or EPS) to the percentage increase in profit before interest and tax. (2 marks)
iv) Calculate the Combined gearing, measured as the ratio of the percentage change in total earnings (or EPS) to the percentage increase in sales. (2 marks)
v) Explain the significance of operating gearing and financial gearing to the management of Bazar. (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Valuation, Combined Gearing, Financial Forecast, Financial Gearing, Operating Gearing
Level: Level 3

Topic: Financial management
Series: AUG 2022

FM – Nov 2020 – L3 – Q5 – Financial Strategy Formulation

Examines financial proposals affecting Yinko plc's capital structure, including debt-financed share buyback, asset expansion, and asset sale with debt reduction.

Question

Yinko plc operates in the hospitality and leisure industry. The board of directors met recently to discuss several financial proposals:

Proposal 1: Increase the company’s debt by borrowing an additional N100 million and use the funds raised to buy back its shares.
Proposal 2: Increase the company’s debt by borrowing an additional N100 million to invest in expanding available rooms in one of its hotels.
Proposal 3: Sell excess non-current assets in another hotel with a net book value of ₦100 million for N135 million. The funds from the sale will be used to reduce the company’s debt.

Yinko plc Financial Information:

	Amount (N Million)
Non-current assets	1,410
Current assets	330
Total assets	1,740
Equity and liabilities
Share capital (40 kobo per share par value)	240
Retained earnings	615
Total equity	855
Non-current liabilities	700
Current liabilities	185
Total liabilities	885
Total liabilities and capital	1,740

Additional Information:

Yinko’s forecasted after-tax profit for the coming year, without implementing the proposals, is N130 million.
Current share price: N3.20 per share.
Non-current liabilities include a 6% medium-term loan redeemable in seven years. Any increase in borrowing raises the coupon rate by 25 basis points on the total amount borrowed, while a reduction lowers it by 15 basis points.
Effective tax rate: 20%
Expected after-tax return on investment: 15% for new or reduced investments.

Required:

b. Discuss your results. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset sale, debt level, EPS, Financial Gearing, Financial restructuring, Non-current Assets, share buyback
Level: Level 3

Topic: Financial strategy formulation

FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy

Discuss problems of severe financial difficulties and the impact of high financial gearing on stakeholders, excluding bondholders.

Question

(a) Explain the main problems and costs which might arise for a company experiencing a period of severe financial difficulties. (7 Marks)

(b) Describe how interested parties, other than bondholders, will be affected by high financial gearing levels, and describe what protective measures they can take. (8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Debt Management, Financial difficulties, Financial Gearing, Financial strategy, Protective Measures, Stakeholder Impact
Level: Level 3

Topic: Financial Distress and Bankruptcy
Series: MAY 2024

SCS – Nov 2020 – L3 – Q8 – Financial management

Calculate operating and financial gearing for GGOH and assess how these ratios impact investor decisions.

Question

Assume a 10% interest on the outstanding loan and 22% Corporate Tax.

Required:
i) Calculate the operating gearing and financial gearing for GGOH. (5 marks)

ii) Assess how these ratios could impact an investor’s decision to invest in GGOH. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate finance, Financial Gearing, Investor decision, Operating Gearing, Ratio Analysis
Level: Level 3

Topic: Financial management
Series: NOV 2020

SCS – Aug 2022 – L3 – Q5 – Financial Management

Prepare Little Bee’s financial forecast and calculate its gearing ratios, explaining their significance to Bazar.

Question

Using the additional information presented by AB Consult & Associate to the Director of Finance and Operations, Mrs. Emma Owusu-Kwakye, on 4 August, prepare the following:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Valuation, Combined Gearing, Financial Forecast, Financial Gearing, Operating Gearing
Level: Level 3

Topic: Financial management
Series: AUG 2022

Question Tag: Financial Gearing

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FM – Nov 2020 – L3 – Q5 – Financial Strategy Formulation

Examines financial proposals affecting Yinko plc's capital structure, including debt-financed share buyback, asset expansion, and asset sale with debt reduction.

FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy

Discuss problems of severe financial difficulties and the impact of high financial gearing on stakeholders, excluding bondholders.

SCS – Nov 2020 – L3 – Q8 – Financial management

Calculate operating and financial gearing for GGOH and assess how these ratios impact investor decisions.

SCS – Aug 2022 – L3 – Q5 – Financial Management

Prepare Little Bee’s financial forecast and calculate its gearing ratios, explaining their significance to Bazar.

FM – Nov 2020 – L3 – Q5 – Financial Strategy Formulation

Examines financial proposals affecting Yinko plc's capital structure, including debt-financed share buyback, asset expansion, and asset sale with debt reduction.

FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy

Discuss problems of severe financial difficulties and the impact of high financial gearing on stakeholders, excluding bondholders.

SCS – Nov 2020 – L3 – Q8 – Financial management

Calculate operating and financial gearing for GGOH and assess how these ratios impact investor decisions.

SCS – Aug 2022 – L3 – Q5 – Financial Management

Prepare Little Bee’s financial forecast and calculate its gearing ratios, explaining their significance to Bazar.

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FM – Nov 2020 – L3 – Q5 – Financial Strategy Formulation

Examines financial proposals affecting Yinko plc's capital structure, including debt-financed share buyback, asset expansion, and asset sale with debt reduction.

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FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy

Discuss problems of severe financial difficulties and the impact of high financial gearing on stakeholders, excluding bondholders.

You're reporting an error for "FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy"

SCS – Nov 2020 – L3 – Q8 – Financial management

Calculate operating and financial gearing for GGOH and assess how these ratios impact investor decisions.

You're reporting an error for "SCS – Nov 2020 – L3 – Q8 – Financial management"

SCS – Aug 2022 – L3 – Q5 – Financial Management

Prepare Little Bee’s financial forecast and calculate its gearing ratios, explaining their significance to Bazar.

You're reporting an error for "SCS – Aug 2022 – L3 – Q5 – Financial Management"

FM – Nov 2020 – L3 – Q5 – Financial Strategy Formulation

Examines financial proposals affecting Yinko plc's capital structure, including debt-financed share buyback, asset expansion, and asset sale with debt reduction.

You're reporting an error for "FM – Nov 2020 – L3 – Q5 – Financial Strategy Formulation"

FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy

Discuss problems of severe financial difficulties and the impact of high financial gearing on stakeholders, excluding bondholders.

You're reporting an error for "FM – May 2024 – L3 – SC – Q5 – Financial Distress and Bankruptcy"

SCS – Nov 2020 – L3 – Q8 – Financial management

Calculate operating and financial gearing for GGOH and assess how these ratios impact investor decisions.

You're reporting an error for "SCS – Nov 2020 – L3 – Q8 – Financial management"

SCS – Aug 2022 – L3 – Q5 – Financial Management

Prepare Little Bee’s financial forecast and calculate its gearing ratios, explaining their significance to Bazar.

You're reporting an error for "SCS – Aug 2022 – L3 – Q5 – Financial Management"

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