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practice of financial accounting
Member rating: No Rating | Words: | Submitted: Fri Mar 02 2007
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Practice of financial accounting The table below shows the rate of return on shareholders equity and gearing ratio Bonnie ltd Clyde ltd Rate of return on shareholders equity 14% 14% Gearing(debt equity) ratio 200% 20% Rate of return on shareholders equity (50 increase on operating profit before interest) 35% 22.4% Rate of return on shareholders equity(50 decrease on operating profit before interest) -7% 5.6% *formula in appendix The return on share holder's equity compares the amount of profit for the period available to the shareholders with the shareholders stake in the company. The two companies have the same rate of return on shareholders equity at 14%, however when operating profit before deducting interest charges is increased by 50%, both companies figures increase. However Bonnie ltd has a better rate of return on shareholders equity at 35% compared to Clyde ltd at 22.4%. However when the operating profit is decreased by 50% Bonnie ltd does not have a favorable rate of return as its figure...
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