- 15 Marks
FM – Nov 2022 – L3 – Q6 – Dividend Policy
Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.
Question
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)
Find Related Questions by Tags, levels, etc.
- Tags: Dividend Cover, Equity Valuation, Investment decisions, P/E Ratio, Stock Market Analysis
- Level: Level 3
- Topic: Dividend Policy
- Series: NOV 2022
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