5.1 Choose a term from the list below that answers the specific following questions - NSC Accounting - Question 5 - 2019 - Paper 1
Question 5
5.1 Choose a term from the list below that answers the specific following questions. Write only the term next to the question numbers (5.1.1 to 5.1.4) in the ANSWER ... show full transcript
Worked Solution & Example Answer:5.1 Choose a term from the list below that answers the specific following questions - NSC Accounting - Question 5 - 2019 - Paper 1
Step 1
5.1.1 Is the business able to pay off all its debts?
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Answer
The term that answers this question is solvency. Solvency refers to the ability of a business to meet its long-term financial obligations.
Step 2
5.1.2 Can the business pay off short-term debts in the next financial year?
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Answer
The appropriate term is liquidity. Liquidity indicates whether a company can quickly meet its short-term liabilities with its current assets.
Step 3
5.1.3 Will shareholders be satisfied with the benefit that they receive for investing in the company?
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Answer
The term that applies here is return on equity. This ratio measures the profitability of a company in relation to the shareholders' equity.
Step 4
5.1.4 To what extent is the company financed by loans or borrowed capital?
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Answer
The relevant term is gearing. Gearing indicates the ratio of a company's borrowed funds to its equity, reflecting the extent of financing through loans.
