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Kitty Kat Ltd decides to expand its operations by applying for an additional loan of $500,000. As a result, revenue from ordinary activities is expected
Kitty Kat Ltd decides to expand its operations by applying for an additional loan of $500,000. As a result, revenue from ordinary activities is expected to increase by $200,000. Financial data with the expansion and without expansion include: Total assets Total liabilities Sales Revenue Gross Profit Operating expenses Total cash surplus Required: With expansion ($) 7,500,000 Without expansion ($) 5,500,000 3,000,000 2,500,000 1,200,000 1,000,000 950,000 800,000 275,000 200,000 200,000 350,000 a) Calculate the Return on Equity (ROE) and Return on Asset (ROA) ratios With and Without the expansion. Return on Equity Return on Asset With Expansion (4 marks) Without Expansion b) What are some potential issues if an investor only focuses on the Return on Equity and Return on Asset ratios? Answer to Q10 (b): (2 marks)
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