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Interpretation of financial statements

Example 3

Gearing and interest cover

Extracts from the financial statements of Eden are presented below.

20X6 20X5
Statement of profit or loss $000 $000

Profit from operations 5,000 5,000
Finance costs (600) (480)

——— ———
Profit before tax 4,400 4,520

Income tax expense (900) (920)
——— ———

Profit for the year 3,500 3,600
——— ———

Statement of financial position
Equity

Ordinary share capital 10,000 10,000
Retained earnings 9,100 6,200

——— ———
19,100 16,200
——— ———

Non-current liabilities

6% loan notes 11,000 8,000
Required:

Calculate gearing and interest cover for Eden for 20X5 and 20X6.

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