John Jones is considering purchasing shares in one of two companies and has extracted the following information from the statement of financial position of each company.

\begin{tabular}{|c|c|c|}

\hline & \begin{tabular}{l}

Company A P/c \\

$£ 000$

\end{tabular} & \begin{tabular}{l}

Company B Plc \\

$£ 000$

\end{tabular} \\

\hline \multicolumn{3}{|l|}{ Authorised share capital } \\

\hline \begin{tabular}{l}

$£ 1$ ordinary shares \\

01 froference shares

\end{tabular} & & \multirow[t]{2}{*}{1,000} \\

\hline $8 \% £ 1$ preference shares & & \\

\hline \multicolumn{3}{|l|}{ Issued share capital } \\

\hline \begin{tabular}{l}

$£ 1$ ordinary shares \\

$8 \% £ 1$ preference shares

\end{tabular} & 200 & 800 \\

\hline \multicolumn{3}{|l|}{ Reserves } \\

\hline \begin{tabular}{l}

Share premium \\

Retained earnings

\end{tabular} & 300 & \\

\hline Retained earnings & 400 & 200 \\

\hline \multicolumn{3}{|c|}{\begin{tabular}{l}

Non-current liabilities: loan notes \\

$10 \%$ loan notes (2013)

\end{tabular}} \\

\hline \begin{tabular}{l}

$10 \%$ loan notes (2013) \\

$12 \%$ loan notes (2019)

\end{tabular} & & 200 \\

\hline \multirow{6}{*}{\multicolumn{3}{|c|}{\begin{tabular}{l}

Required: \\

(a) Define the term 'gearing' stating clearly what is meant by a low gearing ratio. \\

(b) Calculate the gearing factor for each company. \\

(c) Explain to John Jones the significance of gearing to an ordinary shareholder in each of the \\

companies above. \\

(d) Assuming for each company a trading profit of $£ 200,000$ before interest and an ordinary dividend \\

of $15 \%$ show the movement on retained earnings for a year for each company. You should \\

ignore taxation.

\end{tabular}}} \\

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\end{tabular}