The gearing for this business in 2020 indicates that it is
A - HSC - SSCE Business Studies - Question 20 - 2020 - Paper 1
Question 20
The gearing for this business in 2020 indicates that it is
A. better than the industry average and has improved since 2019.
B. better than the industry average and h... show full transcript
Worked Solution & Example Answer:The gearing for this business in 2020 indicates that it is
A - HSC - SSCE Business Studies - Question 20 - 2020 - Paper 1
Step 1
Analyze Gearing Data
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Answer
To determine the gearing of the business, we first need to compare its ratio of debt to equity in 2020 against the industry average. A higher gearing ratio typically indicates a company is more leveraged, which can be risky, while a lower ratio suggests a more stable financial position.
Step 2
Compare Against Industry Average
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Answer
Next, we must look at the statistical values available for the industry average. If the business has a gearing ratio that is lower than the industry average, it is indeed worse than the industry average; conversely, if it is higher, it is better.
Step 3
Assess Improvement Since 2019
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Answer
Finally, we need to assess whether the gearing ratio has improved or worsened since 2019. This requires a comparative analysis with the previous year's gearing. If the ratio has increased, it indicates worsening; if it has decreased, it indicates improvement.
Step 4
Conclusion
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Answer
Given that D is the correct answer according to the marking scheme, we conclude that the company is worse than the industry average and has indeed worsened since 2019.
