5.1 CONCEPTS Provide an accounting concept that best addresses the following analysis questions - NSC Accounting - Question 5 - 2016 - Paper 1

The reliance on borrowed funds can be evaluated using the debt equity ratio. A high ratio suggests a significant reliance on debt financing relative to equity, indicating potential financial risk.

Immediate debts can be assessed using liquidity ratios such as the current ratio and acid test ratio. A current ratio above 1 and an acid test ratio near or above 1 indicate that the business is capable of meeting its short-term obligations.

Expense management can be evaluated through the company's cost ratios and net profit margin. A decrease in costs relative to revenue shows effective expense control, leading to positive cash flow.

The cash generated from operations can be calculated by adjusting the net profit for non-cash items like depreciation and changes in working capital. This provides a clearer view of the cash that the business is able to generate from its core operations.

The calculations for income tax paid, dividends paid, and fixed assets sold need to consider the respective time frames and actual figures from the financial statements.

In this section, detail the cash inflow from issuing shares and any outflow related to repurchasing shares and loan repayments. This captures the financing activities of the company.

Important financial indicators include the debt equity ratio, net asset value per share, and return on shareholders' equity. Each should be calculated carefully to reflect the company's financial health.

Liquidity indicators such as the current ratio, acid test ratio, and average debtors collection period would demonstrate improvement in liquidity. Highlighting the specific figures from both current and previous years will illustrate this change.

Shareholders' satisfaction can be gauged through the dividends per share and return on equity. A comparison of these indicators against prior years can indicate whether their investments are yielding positive returns.

To assess the justification for acquiring the loan, examine the debt equity ratio and the return on capital employed. A stable or improving ratio would indicate that the loan was a sensible financial move.