The following are the summarised financial statements for X Ltd for 2005 and 2006: Summarised income statements 2005 2006 K K Turnover 243 150 291 950 Operating profit 8 619 10 335 Interest payable 992 992 Profit before taxation 7 627 9 343 Taxation 2 867 3 513 Profit after tax 4 760 5 830 Dividends 1 120 1 200 Retained profit for the year 3 640 4 630 Retained profit b/f 11 770 15 410 Retained profit c/f 15 410 20 040 Summarised balance sheets 2005 2006 K K Non current assets 2 498 6 350 Current assets: Inventory 20 073 25 228 Receivables 20 105 21 685 Bank 6 046 2 895 5 Total assets 48 722 56 158 Capital and reserves: Ordinary share capital of K0.250 per share 4 960 4 960 Retained earnings 15 410 20 040 Non current liabilities: 10% debentures 9 920 9 920 Current liabilities: Trade payables 16 302 18 615 Taxation 1 237 1 630 Dividends payable 893 993 Total equity and liabilities 48 722 56 158 Required: 1. Using Suitable ratios make commentaries on the

i. Profitability of the Company

ii. Liquidity of the Company

iii. The Gearing of the company 12 marks

2. Discuss the relationship between investment decisions, dividend decisions and financing decisions in the context of business, illustrating your discussion with examples where appropriate. 8 marks