With a lower gross margin, E s asset turnover should be considerably higher than S s to compensate. More sales volume needed. Its credit period of 41 days is highish, and there could be a problem here. Further information needed as to the ageing of debtors and the terms of the bank overdraft. All other variables remain constant e.g. price level, production, efficiency.
Profit is calculated on variable cost basis.
Costs can be divided into fixed and variable elements. The company is not committed to paying a fixed annual return. Permanent source of finance. Popular source of finance because of the prospects of high return. Reduce financial gearing which will make it easier for the company to raise more capital from non-equity source.