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Accounting Paper 1, November 2024, question 3.4.2

Accounting P1 · Analysis and interpretation
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Indicators for the company: Debt/equity ratio: 2023: 0,6 : 1; 2024: 0,3 : 1 Return on average capital employed (ROTCE): 2023: 14%; 2024: 22% Interest rate on the loan: 11%
3.4.26 marks
The directors of Mkhize Traders Ltd bought extra equipment during 2024 and paid for part of it with a new loan. Using the information provided, explain how this decision changed the company’s financial risk and its gearing. Support your answer with TWO different indicators, and quote the figures for each.

NSCBased on Nov 2024 · Paper 1 · Q3.4.2

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What examiners found

Candidates misjudged the trends. A lower debt-equity ratio means lower risk, and a return above the loan interest rate shows positive gearing.

In our words. Source: Department of Basic Education, NSC 2024 Diagnostic Report, Part 1 (Book 1), Q3.4.

Updated