- 8 Marks
FM – L2 – Q1 – Sources of finance: equity
Calculate and comment on ratios relevant to investors for SunnyCorp, including EPS, PE ratio, dividend yield, dividend cover, interest yield, and gearing.
Question
The following figures have been extracted from the annual accounts of SunnyCorp:
| Item | Amount |
|---|---|
| Issued share capital | 1,000,000 ordinary shares of ZAR 1 each, fully paid |
| Issued debt capital | ZAR 250,000 10% debentures |
| Reserves | |
| Capital (share premium reserve) | ZAR 200,000 |
| Accumulated profits | |
| Profit and distributions | |
| Profit for the year | ZAR 600,000 (before interest and tax) |
| Ordinary dividend payments | ZAR 0.20 per share |
The current market price of SunnyCorp’s equity shares is ZAR 3.20 each. Its debentures are priced at ZAR 90 per cent. The company’s rate of corporation tax (income tax) is 30%.
Required:
Calculate the ratios that are likely to be of interest to an investor or potential investor in SunnyCorp.
Comment on each:
(8 marks for calculations, 8 marks for comments)
Find Related Questions by Tags, levels, etc.
- Tags: Debentures, Dividend yield, Earnings per share, Equity ratios, Financial Ratios, Gearing, Investor metrics
- Level: Level 2
- Topic: Dividend policy
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