(a) Describe the way in which you would attempt to assess the short-term liquidity and financial stability...

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(a) Describe the way in which you would attempt to assess the short-term liquidity and financial stability of a company from its balance sheet.

Illustrate your answer with quantitative examples and state the reservations you would have regarding your conclusions. (15 marks)

(b) What is the significance of the ‘return on capital employed’ ratio as an indication of the profitability of a business? What are the principal measurement problems encountered in computing this ratio from conventionally produced accounts?

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