3.1 Choose a category of indicators from COLUMN B that matches the description in COLUMN A - NSC Accounting - Question 3 - 2021 - Paper 1

The ability of a business to pay off its short-term debts is referred to as Liquidity. This is often measured by the Current Ratio or Quick Ratio, which assess the company's short-term financial health.

This is known as Gearing. It represents the proportion of debt used to finance the company's assets. A high gearing ratio may indicate greater financial risk, as the company relies more heavily on borrowed funds.

This is referred to as Solvency. Solvency measures a company's ability to meet its long-term debts and financial obligations. It is typically assessed using ratios such as the Debt-to-Equity ratio.

Two relevant financial indicators from Broom Ltd include:

1. Operating Profit Margin (OPM): Increased from 6% in the previous year to 8% this year, indicating improved efficiency in managing operating costs.
2. Expense Ratio: Decreased from 20% to 18%, suggesting better control over expenses relative to revenues.

The dividend pay-out policy of Flexi Ltd is concerning for several reasons:

1. Strain on Cash Flow: By paying out a large portion of profits as dividends, the company may jeopardize its cash flow, limiting funds available for reinvestment.
2. Investor Perception: This can lead to negative perceptions from investors, who may see it as a lack of commitment to future growth initiatives.