Question Tag: Dividend Cover

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  • 20 Marks

FM – May 2019 – L3 – Q2 – Strategic Performance Measurement

Calculate and analyze PH Plc.’s financial performance using EPS, dividend yield, dividend cover, and P/E ratio metrics.

The following financial information is available for PH Plc:

Year 2014 2015 2016 2017
Earnings attributed to ordinary shareholders (₦m) 200 225 205 230
Number of ordinary shares (millions) 2,000 2,100 2,100 1,900
Price per share (kobo) 220 305 290 260
Dividend per share (kobo) 5 7 8 8

Assume that share prices are as at the last day of each year.

Required:

a. Calculate PH Plc.’s earnings per share, dividend yield, dividend cover, and price/earnings ratio. Explain the meaning of each term and state their limitations. (14 Marks)
b. Explain why the changes that occurred in the figures calculated in (a) above over the past four years might have happened. (6 Marks)

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  • 20 Marks

CR – May 2018 – L3 – SB – Q2 – Associates and Joint Ventures (IAS 28

Calculate and interpret key financial ratios for Wole-Adura Group and evaluate liquidity.

Set out below are the draft accounts of Wole-Adura Plc and subsidiaries and of Maseru Associates. Wole-Adura acquired 40% of the equity capital of Maseru Associates three years ago when the latter’s retained earnings stood at N140m.

Abridged statement of financial position

Wole-Adura Plc & Subsidiaries Maseru Associates
Property, plant, and equipment 990 Nm
Investment in Maseru Associates at cost 290 Nm
Loan to Maseru Associates 70 Nm
Current assets 450 Nm
Loan from Wole-Adura Plc. –
Total Assets 1800 Nm

FINANCED BY:

| Ordinary shares of 50k each | 1,125 Nm | 350 Nm | | Retained earnings | 675 Nm | 350 Nm | | Total Equity | 1800 Nm | 700 Nm |

Abridged statements of profit or loss

Wole-Adura Plc & Subsidiaries Maseru Associates
Profit before tax 427.50 Nm
Tax expense (157.50 Nm)
Profit after tax 270.00 Nm

Additional information:

(i) Wole-Adura proposed a dividend of N225m.
(ii) Total market capitalisation is N5,625m.

Required:

(a) Calculate each of these ratios for Wole-Adura Plc. and subsidiaries:

  1. Earnings per share
  2. Dividend cover
  3. Earnings yield
  4. Dividend yield

(4 Marks)

(b)

  1. Using the equity method, compute the earnings of the group incorporating the associates. (4 Marks)
  2. Compute the ratios in (a) above for the group. (4 Marks)

(c) Comment on the ratios calculated in (a) and (b) above by pairwise comparison. (3 Marks)

(d) Extracts from the financial statements of Ikoku Plc. recently published are as follows:

Statement of profit or loss for the year ended December 31, 2017

2017 2016
Revenue 360 Nm
Cost of sales (150 Nm)
Gross profit 210 Nm
Operating expenses (50 Nm)
Operating profit 160 Nm
Interest expense (10 Nm)
Tax expense (60 Nm)
Profit for the year 90 Nm

Statement of financial position as at December 31, 2017

2017 2016
Non-current assets
Property, plant & equipment 80 Nm
Current assets
Inventory 200 Nm
Trade receivables 70 Nm
Bank (50 Nm)
Total assets 300 Nm

Equity & liabilities

| Ordinary shares of N1 each | 60 Nm | 40 Nm | | Current liabilities | | | Trade payables | 190 Nm | 60 Nm | | Current tax | 50 Nm | 15 Nm | | Total liabilities and equity | 300 Nm | 115 Nm |

Required:

Discuss the liquidity challenges of Ikoku Plc. during the year ended December 31, 2017, from the extracts of the published financial statements. (5 Marks)

(Total 20 Marks)

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  • 15 Marks

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

Companies A, B, and C are in the food retailing sector of the stock market. The following key stock market statistics are provided.

Food Retailers: Ordinary Shares, Key Stock Market Statistics:

Company A B C
Share Price (₦) 2.10 1.80 2.30
Earnings per Share (₦) 0.30 0.25 0.35
Dividend per Share (₦) 0.18 0.15 0.25

Required:

a. Illustrating your answer by using data from the table above, define and explain the term P/E ratio, and comment on the way it may be used by an investor to appraise a possible share purchase. (8 Marks)

b. Using data in the above table, calculate the dividend cover for Companies C and B, and explain the meaning and significance of the measure from the point of view of equity investors. (7 Marks)

(Total 15 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Calculate key financial ratios and evaluate the company's performance for shareholder and lender insight.

A-Z is considering raising external finance through offering its shares for sale or obtaining a term loan from the bank. The company’s financial statements for the year ended November 30, 2021, have been subjected to financial analysis as follows:

Statement of Comprehensive Income for Year Ended November 30:

2021 (N’000) 2020 (N’000)
Profit before interest and tax 6,600 4,710
Interest expense (510) (450)
Profit before tax 6,090 4,260
Income tax expense (2,190) (1,560)
Profit after tax 3,900 2,700
Dividends paid (750) (750)
Retained profit 3,150 1,950

Statement of Financial Position as at November 30:

2021 (N’000) 2020 (N’000)
Non-current assets 19,050 16,800
Current assets:
Trade receivables 6,300 6,210
Inventories 5,130 4,620
Total current assets 11,430 10,830
Total assets 30,480 27,630
Equity and liabilities
Equity:
Share capital (ordinary shares of N1 fully paid up) 9,000 9,000
Retained earnings 11,100 7,950
Total Equity 20,100 16,950
Non-current liabilities:
10% Loan notes 2022/2023 4,500 4,500
Current liabilities:
Trade payables 3,120 3,390
Taxation 1,650 1,350
Bank overdraft 1,110 1,440
Total Equity and Liabilities 30,480 27,630

Required:
a. Compute the following ratios for the years 2020 and 2021:

  1. Return on equity
  2. Dividend cover
  3. Dividend pay-out ratio
  4. Interest cover
    (8 Marks)

b. Based on the ratios computed above, prepare a report on the performance and state of the company, assuming potential shareholders and lenders are the recipients of your report.
(12 Marks)
(Total 20 Marks)

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  • 4 Marks

CR – Nov 2020 – L3 – Q5b – Investment Ratios

Calculate two investment ratios of interest to a potential investor for two years.

Calculate, for both years, TWO (2) investment ratios of interest to a potential investor.

 

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  • 15 Marks

FM – MAY 2017 – L2 – Q5 – Business valuations

Calculate the value of FCH Bank Ltd. using net asset value, dividend growth model, and earnings yield method, and analyze Kantamanso Ltd's financial ratios.

a) Recent financial information of FCH Bank Ltd., a listed company, is as follows:

Financial analysts have forecasted that the dividends of FCH Bank Ltd. will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of FCH Bank Ltd. thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes. FCH Bank Ltd. has a cost of equity of 10% per year and a before-tax cost of debt of 7% per year. The 8% bonds will be redeemed at nominal value in six years’ time. FCH Bank Ltd. pays tax at an annual rate of 30% per year and the ex-dividend share price of the company is GH¢8.50 per share.

Required:
Calculate the value of FCH Bank Ltd. using the following methods:
i) Net asset value method;
ii) Dividend growth model;
iii) Earnings yield method.
(9 marks)

b) Kantamanso Ltd, which operates in the Distribution sector in Ghana, has provided the following information for the year ended 31 December 2015:

No of Shares Market Value (GH¢)
10% cum preference shares 18,000
Ordinary Shares 15,000

The proposed dividend for the year is GH¢0.3 for the preference shares and GH¢0.45 for ordinary shares each. The company’s chargeable profit was GH¢40,000 and the profit before taxation was GH¢38,000. The tax rate is 25% for both the company and the individual.

Financial Data GH¢m
Profit after tax (earnings) 66.6
Dividends 40.0
Statement of financial position information
Non-current assets 595
Current assets 125
Total assets 720
Current liabilities 70
Equity
Ordinary share (GH¢1 nominal) 80
Reserves 410
Non-current liabilities
6% Bank loan 40
8% Bonds (GH¢100 nominal) 120
Total liabilities 160

Required:
Calculate in respect of ordinary shares:
i) Dividend cover
ii) Earnings per share
iii) Price/earnings ratio
(6 marks)

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  • 20 Marks

FA – May 2019 – L1 – Q7 – Interpretation of financial statements (Financial Ratios)

Analyze the financial performance of Ayawaso Ltd from 2016 to 2018 using various financial ratios, and discuss the advantages of ratio analysis.

Ayawaso Ltd operates a hotel in Accra, and the following are its results for the last three years with its year-end being 31 December:

Year 2016 2017 2018
Revenue increase / (decrease) (5%) 4% 12%
Non-Current Assets increase / (decrease) 40% 10% 2%
Gross Profit 60% 61% 66%
Net Profit 23% 25% 21%
Return on Capital Employed 12% 15% 10%
Current Ratio 1.4:1 1.6:1 1.8:1
Acid Ratio 0.6:1 1.0:1 0.9:1
Debt to Equity Ratio 50% 44% 43%
Dividend Cover 4 times 8 times 10 times

Required:
a) Using all of the above information, comment on the Gearing, Liquidity, and Profitability of Ayawaso Ltd from 2016 to 2018. (12 marks)

b) Identify and explain FIVE (5) advantages of ratio analysis as a means of assessing the financial performance of a business. (5 marks)

c) State THREE (3) likely reasons for the significant change in non-current assets in 2016 and 2017. (3 marks)

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  • 20 Marks

FM – May 2019 – L3 – Q2 – Strategic Performance Measurement

Calculate and analyze PH Plc.’s financial performance using EPS, dividend yield, dividend cover, and P/E ratio metrics.

The following financial information is available for PH Plc:

Year 2014 2015 2016 2017
Earnings attributed to ordinary shareholders (₦m) 200 225 205 230
Number of ordinary shares (millions) 2,000 2,100 2,100 1,900
Price per share (kobo) 220 305 290 260
Dividend per share (kobo) 5 7 8 8

Assume that share prices are as at the last day of each year.

Required:

a. Calculate PH Plc.’s earnings per share, dividend yield, dividend cover, and price/earnings ratio. Explain the meaning of each term and state their limitations. (14 Marks)
b. Explain why the changes that occurred in the figures calculated in (a) above over the past four years might have happened. (6 Marks)

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  • 20 Marks

CR – May 2018 – L3 – SB – Q2 – Associates and Joint Ventures (IAS 28

Calculate and interpret key financial ratios for Wole-Adura Group and evaluate liquidity.

Set out below are the draft accounts of Wole-Adura Plc and subsidiaries and of Maseru Associates. Wole-Adura acquired 40% of the equity capital of Maseru Associates three years ago when the latter’s retained earnings stood at N140m.

Abridged statement of financial position

Wole-Adura Plc & Subsidiaries Maseru Associates
Property, plant, and equipment 990 Nm
Investment in Maseru Associates at cost 290 Nm
Loan to Maseru Associates 70 Nm
Current assets 450 Nm
Loan from Wole-Adura Plc. –
Total Assets 1800 Nm

FINANCED BY:

| Ordinary shares of 50k each | 1,125 Nm | 350 Nm | | Retained earnings | 675 Nm | 350 Nm | | Total Equity | 1800 Nm | 700 Nm |

Abridged statements of profit or loss

Wole-Adura Plc & Subsidiaries Maseru Associates
Profit before tax 427.50 Nm
Tax expense (157.50 Nm)
Profit after tax 270.00 Nm

Additional information:

(i) Wole-Adura proposed a dividend of N225m.
(ii) Total market capitalisation is N5,625m.

Required:

(a) Calculate each of these ratios for Wole-Adura Plc. and subsidiaries:

  1. Earnings per share
  2. Dividend cover
  3. Earnings yield
  4. Dividend yield

(4 Marks)

(b)

  1. Using the equity method, compute the earnings of the group incorporating the associates. (4 Marks)
  2. Compute the ratios in (a) above for the group. (4 Marks)

(c) Comment on the ratios calculated in (a) and (b) above by pairwise comparison. (3 Marks)

(d) Extracts from the financial statements of Ikoku Plc. recently published are as follows:

Statement of profit or loss for the year ended December 31, 2017

2017 2016
Revenue 360 Nm
Cost of sales (150 Nm)
Gross profit 210 Nm
Operating expenses (50 Nm)
Operating profit 160 Nm
Interest expense (10 Nm)
Tax expense (60 Nm)
Profit for the year 90 Nm

Statement of financial position as at December 31, 2017

2017 2016
Non-current assets
Property, plant & equipment 80 Nm
Current assets
Inventory 200 Nm
Trade receivables 70 Nm
Bank (50 Nm)
Total assets 300 Nm

Equity & liabilities

| Ordinary shares of N1 each | 60 Nm | 40 Nm | | Current liabilities | | | Trade payables | 190 Nm | 60 Nm | | Current tax | 50 Nm | 15 Nm | | Total liabilities and equity | 300 Nm | 115 Nm |

Required:

Discuss the liquidity challenges of Ikoku Plc. during the year ended December 31, 2017, from the extracts of the published financial statements. (5 Marks)

(Total 20 Marks)

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  • 15 Marks

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

Companies A, B, and C are in the food retailing sector of the stock market. The following key stock market statistics are provided.

Food Retailers: Ordinary Shares, Key Stock Market Statistics:

Company A B C
Share Price (₦) 2.10 1.80 2.30
Earnings per Share (₦) 0.30 0.25 0.35
Dividend per Share (₦) 0.18 0.15 0.25

Required:

a. Illustrating your answer by using data from the table above, define and explain the term P/E ratio, and comment on the way it may be used by an investor to appraise a possible share purchase. (8 Marks)

b. Using data in the above table, calculate the dividend cover for Companies C and B, and explain the meaning and significance of the measure from the point of view of equity investors. (7 Marks)

(Total 15 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Calculate key financial ratios and evaluate the company's performance for shareholder and lender insight.

A-Z is considering raising external finance through offering its shares for sale or obtaining a term loan from the bank. The company’s financial statements for the year ended November 30, 2021, have been subjected to financial analysis as follows:

Statement of Comprehensive Income for Year Ended November 30:

2021 (N’000) 2020 (N’000)
Profit before interest and tax 6,600 4,710
Interest expense (510) (450)
Profit before tax 6,090 4,260
Income tax expense (2,190) (1,560)
Profit after tax 3,900 2,700
Dividends paid (750) (750)
Retained profit 3,150 1,950

Statement of Financial Position as at November 30:

2021 (N’000) 2020 (N’000)
Non-current assets 19,050 16,800
Current assets:
Trade receivables 6,300 6,210
Inventories 5,130 4,620
Total current assets 11,430 10,830
Total assets 30,480 27,630
Equity and liabilities
Equity:
Share capital (ordinary shares of N1 fully paid up) 9,000 9,000
Retained earnings 11,100 7,950
Total Equity 20,100 16,950
Non-current liabilities:
10% Loan notes 2022/2023 4,500 4,500
Current liabilities:
Trade payables 3,120 3,390
Taxation 1,650 1,350
Bank overdraft 1,110 1,440
Total Equity and Liabilities 30,480 27,630

Required:
a. Compute the following ratios for the years 2020 and 2021:

  1. Return on equity
  2. Dividend cover
  3. Dividend pay-out ratio
  4. Interest cover
    (8 Marks)

b. Based on the ratios computed above, prepare a report on the performance and state of the company, assuming potential shareholders and lenders are the recipients of your report.
(12 Marks)
(Total 20 Marks)

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  • 4 Marks

CR – Nov 2020 – L3 – Q5b – Investment Ratios

Calculate two investment ratios of interest to a potential investor for two years.

Calculate, for both years, TWO (2) investment ratios of interest to a potential investor.

 

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  • 15 Marks

FM – MAY 2017 – L2 – Q5 – Business valuations

Calculate the value of FCH Bank Ltd. using net asset value, dividend growth model, and earnings yield method, and analyze Kantamanso Ltd's financial ratios.

a) Recent financial information of FCH Bank Ltd., a listed company, is as follows:

Financial analysts have forecasted that the dividends of FCH Bank Ltd. will grow in the future at a rate of 4% per year. This is slightly less than the forecast growth rate of the profit after tax (earnings) of the company, which is 5% per year. The finance director of FCH Bank Ltd. thinks that, considering the risk associated with expected earnings growth, an earnings yield of 11% per year can be used for valuation purposes. FCH Bank Ltd. has a cost of equity of 10% per year and a before-tax cost of debt of 7% per year. The 8% bonds will be redeemed at nominal value in six years’ time. FCH Bank Ltd. pays tax at an annual rate of 30% per year and the ex-dividend share price of the company is GH¢8.50 per share.

Required:
Calculate the value of FCH Bank Ltd. using the following methods:
i) Net asset value method;
ii) Dividend growth model;
iii) Earnings yield method.
(9 marks)

b) Kantamanso Ltd, which operates in the Distribution sector in Ghana, has provided the following information for the year ended 31 December 2015:

No of Shares Market Value (GH¢)
10% cum preference shares 18,000
Ordinary Shares 15,000

The proposed dividend for the year is GH¢0.3 for the preference shares and GH¢0.45 for ordinary shares each. The company’s chargeable profit was GH¢40,000 and the profit before taxation was GH¢38,000. The tax rate is 25% for both the company and the individual.

Financial Data GH¢m
Profit after tax (earnings) 66.6
Dividends 40.0
Statement of financial position information
Non-current assets 595
Current assets 125
Total assets 720
Current liabilities 70
Equity
Ordinary share (GH¢1 nominal) 80
Reserves 410
Non-current liabilities
6% Bank loan 40
8% Bonds (GH¢100 nominal) 120
Total liabilities 160

Required:
Calculate in respect of ordinary shares:
i) Dividend cover
ii) Earnings per share
iii) Price/earnings ratio
(6 marks)

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  • 20 Marks

FA – May 2019 – L1 – Q7 – Interpretation of financial statements (Financial Ratios)

Analyze the financial performance of Ayawaso Ltd from 2016 to 2018 using various financial ratios, and discuss the advantages of ratio analysis.

Ayawaso Ltd operates a hotel in Accra, and the following are its results for the last three years with its year-end being 31 December:

Year 2016 2017 2018
Revenue increase / (decrease) (5%) 4% 12%
Non-Current Assets increase / (decrease) 40% 10% 2%
Gross Profit 60% 61% 66%
Net Profit 23% 25% 21%
Return on Capital Employed 12% 15% 10%
Current Ratio 1.4:1 1.6:1 1.8:1
Acid Ratio 0.6:1 1.0:1 0.9:1
Debt to Equity Ratio 50% 44% 43%
Dividend Cover 4 times 8 times 10 times

Required:
a) Using all of the above information, comment on the Gearing, Liquidity, and Profitability of Ayawaso Ltd from 2016 to 2018. (12 marks)

b) Identify and explain FIVE (5) advantages of ratio analysis as a means of assessing the financial performance of a business. (5 marks)

c) State THREE (3) likely reasons for the significant change in non-current assets in 2016 and 2017. (3 marks)

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