Page 22 - Kitron Annual Report 2011

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Notes to the consolidated financial statements
22
Kitron annual report 2011
The gearing ratios at 31 December 2011 and 2010 were as follows:
(Amounts in NOK 1000)
2011
2010
Total borrowings (note 21)
299 176
264 033
Cash and cash equivalents (note 16)
(50 916)
(48 243)
Net debt
248 260
215 790
Total equity
436 009
420 575
Total capital
684 269
636 365
Gearing ratio
36%
34%
Estimates and discretionary assessments are based
on historical experience and other factors, including
expectations of future events which are considered
to be likely under present conditions. The group pre-
pares estimates and makes assumptions about the
future. Accounting estimates derived from these will
by definition seldom accord fully with the final out-
come. Estimates and assumptions which represent a
substantial risk for significant changes in the carrying
amount of assets and liabilities during the coming fis-
cal year are discussed below.
Estimated value of goodwill
The group performs annual tests to assess the fall
in value of goodwill. The recoverable amount from
cash generating units is determined on the basis of
present-value calculations of expected annual cash
flows. These calculations require the use of esti-
mates for cash flows and the choice of discount rate
before tax for discounting the cash flows. A 10 per
cent reduction in the estimated contribution margin or
increase in the discount rate before tax for discounting
cash flows would not have generated an additional im-
pairment charge for goodwill. Additional information is
disclosed in note 11.
Note 4 Important accounting estimates
and 
discretionary assessments
Interest rate risk
The group’s interest rate risk arises mainly from short-
term borrowings (factoring debt and bank overdraft).
Only a minor part of the loans are long-term borrowings
(leasing debt).The group’s borrowings are mainly with
variable rates which expose the group to cash flow
interest rate risk.
Interest on the group’s interest-bearing debt is
charged at the relevant market rate prevailing at any
given time (three months interbank offered rate –
Nibor , Stibor, Libor or Vilibor as the case may be –
plus the agreed interest margin). There will not occur
any gain/loss on the balance sheet amounts in case
interest rates are increased or lowered. At 31 De-
cember 2011, if interest rate on NOK borrowings had
been 1 percentage points higher/lower with all other
variables held constant, post-tax profit for the year
would have been NOK 1.6 million (2010: NOK 1.8
million) lower/higher, mainly as a result of higher/lower
interst expense on floating rate borrowings. At 31 De-
cember 2011, if interest rate on borrowings in foreign
currency had been 1 percentage points higher/lower
with all other variables held constant, post-tax profit
for the year would have been NOK 1.3 million (2010:
NOK 0.9 million) lower/higher. External financing for
the group’s operational companies takes place in the
functional currency. No interest rate instruments have
been established in the group. The company does
not have significant interest-bearing assets, so that
its income and cash flow from operational activities
are not significantly exposed to changes in the market
interest rate.
Capital risk management
The group’s objectives when managing capital are to
safeguard the group’s ability to continue as a going
concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure,
the group may adjust the amount of dividends paid
to shareholders, return capital to shareholders, issue
new shares or sell assets to reduce debt.