Order Description
a) Choose a FTSE 100 company and calculate for four years the following gearing ratios:
? Interest Cover ratio;
? Long term debt /Long term debt + shareholders’ funds, and
? All borrowings /All borrowings + shareholders’ funds
Critically analyse the financial situation of the company using the ratios you have
calculated. Your discussion should also include comparison with ratios relevant for
the sector/industry in which the company operates.
(30 marks)

b) ” It has been correctly pointed out that using debt to save taxes is an inadequate
explanation of why firms use debt in their capital structure. This is because companies
had debt before the introduction of corporate income tax.”
Evaluate this statement in the light of two key theories of capital structure and assess the
extent to which empirical evidence may or may not support such other theories.
(