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Submitted By Maudr

Words 271

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Words 271

Pages 2

The ratio measures the level of indebtedness of the company against the company’s equity.PG is highly geared having slided by 37% to 79% in year 2012 compared to 42% in year 2011. Debenture holders finance 79% of the company’s equity leaving the shareholders with only 21%.

The implications of high gearing at Mazuru Company is that it is increasing the cost of borrowing ( Finance charges) thereby affecting profitability.

If the trend continues and the company fails to pay up the debt, the debenture holders may end up taking over the ownership of the company.

Return on Investment:

The ratio measures the capacity of the investment to generate profit. The company has been making net losses since 2011 of $1,2 million and $0,9 Million in 2012 hence there was no return on shareholders’ investment.

There is a threat of that the company may fail to continue to operating as a going concern if the trend continues.

Liquidity Ratio:

This ratio measures the entity’s ability to cover its current liabilities from available current assets. A current ratio of 1:1 is considered fair. MC has liquidity challenges as its current liabilities exceed its current assets .The situation has not improved since year 2011 (0:0.58) to current year under review -2012 (0:0.48)

Of the total current liability, only 48% can be covered and the rest will not be paid. The company is unable to pay its short-term obligations and may fail to procure trading stock .The implications are that the company risk closure and lawsuits by creditors resulting in the company declared...

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