Page 96 - Honeywell Annual Report 2021 comm 10 09 v17a.cdr

Notes to the Financial Statements

For the Year Ended 31 March, 2021 cont’d

Deferred tax estimation

Recognition of deferred tax assets and liabilities involves making a series of assumptions. As far as deferred tax
assets are concerned, their realization ultimately depends on taxable profits being available in the future.
Deferred tax assets are recognized only when it is probable that taxable profits will be available against which
the deferred tax asset can be utilized and it is probable that the entity will earn sufficient taxable profit in future
periods to benefit from a reduction in tax payments. This involves the Company making assumptions within its
overall tax-planning activities and periodically reassessing them in order to reflect changed circumstances as well
as tax regulations. Moreover, the measurement of a deferred tax asset or liability reflects the manner in which
the entity expects to recover the asset's carrying value or settle the liability.

31. Financial instruments and risk management

Capital risk management
The company's objective when managing capital (which includes share capital, borrowings, working capital and cash
and cash equivalents) is to maintain a flexible capital structure that reduces the cost of capital to an acceptable level
of risk and to safeguard the company's ability to continue as a going concern while taking advantage of strategic
opportunities in order to maximise stakeholder returns sustainably.

The company manages capital structure and makes adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets. In order to maintain the capital structure, the company may adjust
the amount of dividend paid to the shareholders, issue new shares, issue new debt, issue new debt to replace
existing debt with different characteristics and/or sell assets to reduce debt.

The company monitors capital utilising a number of measures, including the gearing ratio. The gearing ratio is
calculated as net borrowings (total borrowings less cash) divided by shareholders' equity.

The capital structure and gearing ratio of the company at the reporting date was as follows:
2021 2020
N'000 N'000
Borrowings 11 60,484,793 55,336,989
Trade and other payables 13 23,799,441 21,487,121
Total borrowings 84,284,234 76,824,110
Cash and cash equivalents 10 (20,255,393) (9,355,419)
Net borrowings 64,028,841 67,468,691

Equity 57,968,678 57,160,022
Gearing ratio 110 % 118 %

Financial risk management
Overview

The company is exposed to the following risks from its use of financial instruments:
Ÿ Credit risk;

Ÿ Liquidity risk; and
Ÿ Market risk (currency risk, interest rate risk and price risk).
The board of directors has overall responsibility for the establishment and oversight of the company's risk

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