Accounts Demystified, 7th Edition

9

Analysis of the funding structure

• The funding structure ratios
• Lenders’ perspective
• Gearing
• Shareholders’ perspective
• Liquidity
• Summary

We have looked at Wingate’s underlying business and discovered that it is a much less attractive picture than the management would have you believe, Tom. Now we need to look at the funding structure and see how that affects our views of the company. What I am going to do first is show you how we summarise the funding structure in a simple ratio. We will then look at the implications of that structure from the different points of view of the lenders (i.e. the banks) and the shareholders.

The funding structure ratios

When we rearranged Wingate’s balance sheet in session 8, we established that the funding for ...