Compare the liquidity and debt levels of Zee Ltd and Ryan Ltd, and determine which company uses more loans.

Alright Mazindela — let's do this. 5.1.1 Yes, Zee Ltd is more liquid than Ryan Ltd. This can be proven by considering the efficiency of liquidity management: Current ratio: Ryan Ltd: 5.8 : 1 Zee Ltd: 1.7 : 1 While Ryan Ltd has a numerically higher current ratio, a ratio of 5.8:1 is excessively high. This suggests that Ryan Ltd may have too much capital tied up in current assets (like cash or inventory) that could be invested more productively. Zee Ltd's current ratio of 1.7:1 is healthy and indicates efficient management of its working capital without holding excessive idle assets, making its liquidity more appropriate. Acid-test ratio: Ryan Ltd: 3.7 : 1 Zee Ltd: 0.8 : 1 Ryan Ltd's acid-test ratio of 3.7:1 is also very high, indicating a large amount of quick assets that might not be optimally utilized. Zee Ltd's ratio of 0.8:1, while slightly below the ideal 1:1, is closer to an efficient level compared to Ryan Ltd's excessive liquidity. This suggests Zee Ltd is managing its most liquid assets more effectively. 5.1.2 Which company uses more loans? Zee Ltd uses more loans. This is supported by the Debt/equity ratio: Ryan Ltd: 0.2 : 1 Zee Ltd: 1.9 : 1 Zee Ltd's significantly higher ratio indicates a greater reliance on borrowed funds compared to its own equity. Explain whether this is a good idea or not: For Zee Ltd, using more loans is not a good idea. This is because Zee Ltd's % return on capital employed (before tax) is 12.4\%, which is lower* than its % interest rate on loans of 14\%. This indicates negative financial leverage, meaning the company is earning less from its borrowed capital than it is paying in interest, which reduces shareholder returns. 5.1.3 The market price of Ryan Ltd's shares is much better than that of Zee Ltd due to stronger performance indicators: Earnings per share (EPS): Ryan Ltd: 813 cents Zee Ltd: 179 cents Ryan Ltd generates significantly higher earnings per share, indicating better profitability per share, which typically leads to a higher market valuation. Dividends per share (DPS): Ryan Ltd: 537 cents Zee Ltd: 182 cents Ryan Ltd pays out much higher dividends per share, making its shares more attractive to investors seeking income and supporting a higher market price. 5.1.4 Ryan Ltd is more likely to expand its business. Calculation of Retention Rate: Retention Rate = 1 - Dividends per share (DPS)Earnings per share (EPS) For Ryan Ltd: 1 - 537 cents813 cents = 1 - 0.6605 = 0.3395 or 33.95\% For Zee Ltd: 1 - 182 cents179 cents = 1 - 1.0167 = -0.0167 or -1.67\% Explanation: Ryan Ltd retains a significant portion of its earnings (33.95%), providing internal funds for expansion. Additionally, its Debt/equity ratio of 0.2 : 1 is very low, indicating substantial capacity to take on more debt for future expansion. In contrast, Zee Ltd is paying out more in dividends than it earns (negative retention rate), which is unsustainable and means it has no internal funds for expansion. Its high Debt/equity ratio of 1.9 : 1 also limits its ability to secure further loans for growth. 5.1.5 Ryan Ltd has a better percentage return, earnings, and dividends than Zee Ltd, supported by these three financial indicators: % return on shareholders' equity: Ryan Ltd: 28.5\% Zee Ltd: 11.5\% Ryan Ltd provides a significantly higher return to its shareholders for every rand of equity invested. Earnings per share (EPS): Ryan Ltd: 813 cents Zee Ltd: 179 cents Ryan Ltd generates much higher earnings per share, indicating superior profitability on a per-share basis. Dividends per share (DPS): Ryan Ltd: 537 cents Zee Ltd: 182 cents Ryan Ltd pays out significantly higher dividends per share, providing a better cash return to its shareholders. Got more? Send 'em!