AQA BUSS3/BUSS4 Revision Thread

Original post by JoshFlySon

Gearing ratio was only 50% after which is an acceptable level and isn't too high

This could have been argued either way in the exam and is probably the reason AQA chose 50%. Given the uncertainty of the proposal's success in terms of them entering a fiercely competitive market segment, you could have considered that level of gearing too risky.

Reply 365

Jackabongo

Guys I spooks about the fact that between 0.25 and 0.5 is considered a good current ratio however it wasn't expressed as a percentage is that still okay?

Reply 366

thopkins

Original post by Jackabongo

Guys I spooks about the fact that between 0.25 and 0.5 is considered a good current ratio however it wasn't expressed as a percentage is that still okay?

I'm afraid that 0.25 is not a good current ratio. It is displayed at 0.25:1 and means that for every £1 of short term debt they only have £0.25 meaning they wouldn't be able to pay their bills and aren't liquid.

Reply 367

Jessicaw2108

I messed up question 3 I think, my analysis was poor and so was my evaluation.

I got gearing 41% and 50% however I did not say payback.

I said for using entirely debt it could be vulnerable to interest rates rising and said they should use current assets (I know it was wrong) or share capital as the dividend paid has increased and price of share has fallen?

I said they should use partly shares and partly loans as the question asked whether they should use 'entirely' borrowing giving the potential for argument but I don't know if that was me being argumentative for the sake of it!

My only evaluation was for they should use partly shares and partly loan is if they can get the loan and if they can sell the shares?

(edited 7 years ago)

Reply 368

AfroBella

14

Original post by DannyMorris7

Yeah I'm certain payback and both gearing calculations are right.
But sounds like my ARR is very different to everyone elses! XD I got like 40% for it

I got 40.2 for ARR aswell

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Reply 369

If you got 40.2 for ARR, it is because you forgot to take off the initial investment cost at the beginning of the calculation.

Reply 370

ridazdi

4

Hey guys this is a brief explanation on what I gave for Q3,in terms of gearing I calculated the hearing before and after borrowing the additional £300m and after boring the gearing rose to 50% suggesting high gearing which could be problematic if external factors such as high interest rates occur and could cause significant long term liquidity problems and because Kings will have more debt to equity, the corporate objective of achieving profit growth will not be met to a significant extent. But an argument for, I wrote that even if the business is highly geared it's not bad because it shows that scale of production of the company is increasing and because of the company's broad product portfolio from hotel accomadtion to flights and holiday packages so risk and spread and hence the high gearing isn't a huge underlying problem.
I wrote something like this, what did you guys write?

Reply 371

lemoncart

Original post by ryanroks1

If you got 40.2 for ARR, it is because you forgot to take off the initial investment cost at the beginning of the calculation.

ARR, I added all of the net profit for the 4 years. 458 was it? Then I did 458/4years over 300 x 100, which gave me 38%. What did I do wrong?

Reply 372

BusinessLover18

I spoke about threat of substitutes for Porter's Five Forces, but I realised that wasnt an appropriate part of the model to apply, have i lost a lot of marks because I referred to it a lot but still made valid points, I was meant to use intense rivalry and threat of new entry :s-smilie:

Reply 373

miacat

10

Can someone please clarify this? Surely going from -0.9 to -0.7 means the service is becoming more price elastic?!

Reply 374

lemoncart

Original post by miacat

Can someone please clarify this? Surely going from -0.9 to -0.7 means the service is becoming more price elastic?!

That's what I wrote too. It's bad.

Reply 375

Original post by ridazdi

Hey guys this is a brief explanation on what I gave for Q3,in terms of gearing I calculated the hearing before and after borrowing the additional £300m and after boring the gearing rose to 50% suggesting high gearing which could be problematic if external factors such as high interest rates occur and could cause significant long term liquidity problems and because Kings will have more debt to equity, the corporate objective of achieving profit growth will not be met to a significant extent. But an argument for, I wrote that even if the business is highly geared it's not bad because it shows that scale of production of the company is increasing and because of the company's broad product portfolio from hotel accomadtion to flights and holiday packages so risk and spread and hence the high gearing isn't a huge underlying problem.
I wrote something like this, what did you guys write?

Pretty much had the same point as you regarding the uncertainty of having relatively high gearing and I combined it with the fact the market segment they were entering had high levels of competition from well-established players such as Ryanair with significant market share (24%), raising risk of the proposal being a failure and ultimately questioning whether the business will readily be able to meet its repayments with 50% gearing as well as they're worryingly low current ratio.

I struggled (a lot) with my other point so I'm essentially relying on getting GAP/GAN in the first. I did some wishy-washy analysis on how the cost savings of the proposal, particularly the employee redundancies and the higher efficiency of the new aircraft, would give a larger revenue expenditure to offset the risk and allow the business to be more comfortable in meeting its repayments. It's very much a contradiction to my first point so I'm hoping the Examiner overlooks it!

(edited 7 years ago)

Reply 376

Original post by miacat

Can someone please clarify this? Surely going from -0.9 to -0.7 means the service is becoming more price elastic?!

More price inelastic. Anything below 1 is inelastic.

Reply 377

nick_dyne14

what was the calculation for gearing? what numbers did people use because i'm trying to remember what i calculated

Reply 378