Dowson is a large business that owns several shops. It offers a range of electrical goods, including computers and televisions. The Finance Director has been reviewing some recent financial information, as shown in Table 1. He is satisfied with Dowson’s liquidity, but he also knows that the business needs to cut its high debt burden, which includes a $6m overdraft. He remarked: ‘The economy is in recession. Many small retailers have failed. Size is an advantage!’
(a)[2]
What is meant by the term ‘Return on capital employed’?
(b)[2]
What is meant by a ‘recession’ in economic terms?
(c)[4]
Identify and explain two ways in which the size of the business could benefit Dowson.
(d)[6]
Identify and explain two problems for Dowson arising from a high level of debt.
(e)[6]
Do you think the Finance Director is justified in being pleased with the business’s liquidity? Support your answer by using the ratio results in Table 1.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Profit earned by the business as a percentage of capital employed” …