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Flashcards · 9615 · A Level Topic 19

Interpretation, analysis and communication of accounting information (A Level) flashcards

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Topic 19: Interpretation, analysis and communication of accounting information

Profit before interest and tax $3,300,000; interest $275,000; tax $685,000; 13,000,000 shares. Profit after tax and EPS?
Profit after tax $2,340,000. EPS 234,000,000 cents ÷ 13,000,000 = 18.0 cents.
Ordinary dividends paid $780,000 on 13,000,000 shares; share price 342 cents. DPS and dividend yield?
DPS 6.0 cents. Yield 6.0 ÷ 342 × 100 = 1.75%.
Profit after tax $2,340,000; dividends $780,000; EPS 18.0 cents; price 342 cents. Dividend cover and P/E?
Dividend cover 3.00 times. Price earnings 342 ÷ 18.0 = 19.0 times.
Interest cover for profit before interest and tax $3,300,000 and interest payable $275,000. Who relies on it?
12.0 times. Lenders rely on it most.
Price earnings ratio 12; EPS 25 cents. Share price?
Price = P/E × EPS = 300 cents.
Current assets $400,000; current liabilities $250,000. $500,000 of debentures are issued for cash. New current ratio and effect on profit?
900,000 ÷ 250,000 = 3.60 : 1. No effect on profit until interest is charged.
Same company (current assets $400,000, current liabilities $250,000) pays a $60,000 dividend. New current ratio?
340,000 ÷ 250,000 = 1.36 : 1. Profit is unaffected; the dividend goes through the statement of changes in equity.
Dividend yield rises from 3.1% to 4.4% while dividend cover falls from 2.4 to 1.3 times. Comment for a shareholder
The higher yield looks attractive, but cover has nearly halved, so the dividend now uses most of profit after tax. If profit falls, the dividend is likely to be cut.
Internal vs external stakeholders in 9615
Internal: employees, management, owners or shareholders. External: customers, suppliers, government, lenders, local community.
Beyond stakeholders, on what must a recommendation's impact be assessed?
The local and national economy, and the environment.
Company J has EPS of 20 cents and K has 12 cents. Is J more profitable?
Not necessarily: EPS depends on the number of shares, so it cannot be compared between companies.

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