Genesis Ltd was incorporated three years ago and has grown rapidly since then. The rapid rate of

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Genesis Ltd was incorporated three years ago and has grown rapidly since then. The rapid rate of growth has created problems for the business, which the directors have found difficult to deal with. Recently, a firm of management consultants has been asked to help the directors to overcome these problems.In a preliminary report to the board of directors, the management consultants state: ?Most of the difficulties faced by the business are symptoms of an underlying problem of overtrading.?The most recent financial statements of the business are set out below.

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All purchases and sales were on credit.A dividend was paid during the year on ordinary shares of ?4,000.

Required:(a) Calculate and discuss five financial ratios that might be used to establish whether the business is overtrading. Do these five ratios suggest that the business is overtrading?(b) S tate the ways in which a business may overcome the problem of overtrading.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Financial Ratios
The term is enough to curl one's hair, conjuring up those complex problems we encountered in high school math that left many of us babbling and frustrated. But when it comes to investing, that need not be the case. In fact, there are ratios that,...
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Accounting and Finance An Introduction

ISBN: 978-1292088297

8th edition

Authors: Peter Atrill, Eddie McLaney

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