The data summarised in the table below show the performance of two firms, A and B, over five years.

Requie:

a. Using the information in the table, explain the comparative attractiveness of the two firms to a potential investor.

b. Why is it important that potential investors should be aware of the ratio of ordinary share capital to other forms of long-term finance (known as the gearing ratio)?

c. Why might a company use various sources of finance?

d. Using examples, explain why it is important that potential investors should consider non-financial factors before making their investment decision.

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Firm Gross profit A 42 37 35 37 35 margin %1 B 30 32 32 33 34 Net profit A 16 13 12 12 10 margin % B 10 11 11 12 12 ROCE% A 14 13 12 12 11 B 9 10 10 11 11 Acid test ratio A 2.7 2.6 2.5 2.5 2.4 B 1.7 1.8 1.5 0.8 1.0