Scott Ch.8 Exam Prep Ratio and Profit Analysis

Chapter 8: Ratio Analysis 1: Profitability, Eef ficiency, and Performance

Test Bank

Type: true-false

Title: Chapter 08 Question 01

1) Ratios are an absolute measure.

a. True

Heading reference:

Evaluating financial statements: ratio analysis

Why is ratio analysis needed?

Ratios, figures or both?

b. False

Heading reference:

Evaluating financial statements: ratio analysis

Why is ratio analysis needed?

Ratios, figures or both?

Type: true-false

Title: Chapter 08 Question 02

2) Ratios must be calculated on a consistent basis in order to generate a valid trend analysis across several years.

a. True

Heading reference: The advantages of ratios: summary, The importance of calculating and presenting ratios consistently

b. False

Heading reference: The advantages of ratios: summary, The importance of calculating and presenting ratios consistently

Type: true-false

Title: Chapter 08 Question 03

3) While ratios are a proportion calculated on a consistent basis across different time periods, they fail to overcome the problem of figures changing from year to year.

a. True

Heading reference:

Evaluating financial statements: ratio analysis

Why is ratio analysis needed?

Ratios, figures or both?

The advantages of ratios: summary

b. False

Heading reference:

Evaluating financial statements: ratio analysis

Why is ratio analysis needed?

Ratios, figures or both?

The advantages of ratios: summary

Type: multiple choice question

Title: Chapter 08 Question 04

4) Which one of the following statements is not true?

a. Ratios are a starting point in the interpretation and evaluation of financial information.

Heading reference: Why is ratio analysis needed?, The advantages of ratios: summary

b. The calculation of the same ratio over several different time periods enables comparisons to be made between those different time periods to determine whether that ratio is rising, falling or staying the same.

Heading reference: Evaluating financial statements: ratio analysis, The advantages of ratios: summary

c. Larger numbers always indicate an improvement in relative terms.

Heading reference: Why is ratio analysis needed?, Ratios, figures or both?

d. A ratio expresses the relationship between two different figures.

Heading reference: Evaluating financial statements: ratio analysis, The advantages of ratios: summary

Type: multiple choice question

Title: Chapter 08 Question 05

5) At 1 October 2020, Jennifer, a market trader, had inventory which had cost her £15,000 to buy. During the financial year ended 30 September 2021, Jennifer made further purchases of goods for resale on her market stall at a gross cost of £125,000. Her suppliers gave her discounts of £1,200 on the basis of her total purchases during the year. During the financial year ended 30 September 2021, Jennifer made sales of £250,000 while incurring van running costs of £20,000 and paying the local council £8,000 in rent for her market stall. At 30 September 2021, Jennifer had inventory on hand which had cost her £16,800 to buy. What is Jennifer’s gross profit % for the financial year ended 30 September 2021?

a. 39.52%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

b. 40.00%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

c. 50.72%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

d. 51.20%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

Type: multiple choice question

Title: Chapter 08 Question 06

6) Imran Limited has sales for the year ended 31 December 2021 of £747,000. The company allowed its customers discounts of £5,000 during the year. £3,000 of these discounts allowed were not taken up by customers who paid the full price for goods supplied. Inventory at 1 January 2021 was £22,500 while inventory at 31 December 2021 was £17,500. Purchases of goods during the year amounted to £425,000. Imran Limited’s suppliers allowed bulk discounts of £11,000 to the company during the year. What is Imran Limited’s gross profit % for the year ended 31 December 2021?

a. 42.44%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

b. 42.67%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

c. 43.91 %

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

d. 44.13%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

Type: multiple choice question

Title: Chapter 08 Question 07

7) Marwan Limited has total sales for the year ended 31 October 2021 of £1,050,000 before taking into account sales returns of £50,000. Inventory at 1 November 2020 was £45,000 while inventory at 31 October 2021 was £60,000. Purchases of goods during the year amounted to £635,000. What is Marwan Limited’s gross profit % for the year ended 31 October 2021?

a. 35.00%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

b. 38.00%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

c. 40.95%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

d. 45.71%

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

Type: multiple choice question

Title: Chapter 08 Question 08

8) Trickey Limited has total sales for the year ended 31 August 2021 of £500,000. Inventory at 1 September 2020 was £65,000. Purchases of goods during the year amounted to £320,000 and discounts received were £10,000. Gross profit percentage for the year was 40%. What is the value of closing inventory?

a. £55,000

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

b. £75,000

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

c. £85,000

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

d. £95,000

Heading reference:

Statement of profit or loss by nature

Further adjustments to the statement of profit or loss

Gross profit percentage

Type: multiple choice question

Title: Chapter 08 Question 09

9) For the financial year ended 31 December 2021, Jemima Plc has revenue of £28m, cost of sales of £14m, finance income of £0.3m, distribution and selling costs of £3m, finance expense of £2m, income tax of £3m and administration expenses of £2.5m. What is Jemima Plc’s operating profit % for the financial year ended 31 December 2021?

a. 13.57%

Heading reference: Different categories of profit, Other profitability ratios

b. 24.29%

Heading reference: Different categories of profit, Other profitability ratios

c. 30.36%

Heading reference: Different categories of profit, Other profitability ratios

d. 50.00%

Heading reference: Different categories of profit, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 10

10) During the financial year ended 31 March 2022, Marie Limited generated sales of £148,000. The company allowed its customers discounts of £5,000 (£2,000 of which were not taken up by customers who paid the full price for the goods supplied) while the cost of sales was £74,000. Selling and distribution costs totalled up to £15,000 and administration expenses incurred came to £21,000. Interest of £6,000 was paid to the bank. What is Marie Limited’s operating profit % for the year ended 31 March 2022?

a. 21.62%

Heading reference:

Different categories of profit

Discounts allowed (early settlement discounts) Other profitability ratios

b. 22.67%

Heading reference:

Different categories of profit

Discounts allowed (early settlement discounts) Other profitability ratios

c. 25.68%

Heading reference:

Different categories of profit

Discounts allowed (early settlement discounts) Other profitability ratios

d. 26.67%

Heading reference:

Different categories of profit

Discounts allowed (early settlement discounts) Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 11

11) For the financial year ended 31 January 2022, Zainab Limited reported sales of £650,000 and a gross profit of £260,000. Selling and distribution costs totalled up to £54,000 and administration expenses incurred came to £76,000. Finance expense was £7,500 and finance income received was £2,500. The company incurred an irrecoverable debt of £10,000 (not taken into account in the figures presented above) and the tax charge on the profit for the year was £23,000. What is Zainab Limited’s operating profit % for the year ended 31 January 2022?

a. 14.15%

Heading reference:

Different categories of profit

Irrecoverable debts

Other profitability ratios

b. 17.69%

Heading reference:

Different categories of profit

Irrecoverable debts

Other profitability ratios

c. 18.46%

Heading reference:

Different categories of profit

Irrecoverable debts

Other profitability ratios

d. 20.00%

Heading reference:

Different categories of profit

Irrecoverable debts

Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 12

12) Which one of the following statements describes the profit before tax %?

a. The profitability % after adding all income and deducting all expenses and charges for the period under review.

Heading reference: Other profitability ratios

b. The profitability % on the basis of revenue – all operating costs, but before taking into account the effects of net finance costs and income tax.

Heading reference: Other profitability ratios

c. The profitability % after deducting all costs incurred and adding all income earned.

Heading reference: Other profitability ratios

d. The profitability % after deducting all the direct costs of production of goods sold or all the direct costs of goods bought for resale.

Heading reference: Gross profit percentage, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 13

13) Which one of the following statements does not describe a feature of the profit before tax %?

a. Eliminates the distorting effect of changes in tax rates.

Heading reference: Other profitability ratios

b. Takes into account income and profits earned from all sources, trading, investment and exceptional income and profits.

Heading reference: Income in the statement of profit or loss, Other profitability ratios

c. Represents the profitability % after deducting all the costs incurred in operations and financing.

Heading reference: Other profitability ratios

d. Represents the profitability % after adding in all the income and deducting all the costs and all the charges incurred by a company.

Heading reference: Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 14

14) For the financial year ended 30 November 2021, Pedro Limited reports revenue of £1,000,000, operating profit of £350,000, finance income of £15,000, finance expense of £50,000 and a taxation charge of £63,000. What is Pedro Limited’s profit before tax % for the financial year ended 30 November 2021?

a. 22.20%

Heading reference: Different categories of profit, Other profitability ratios

b. 25.20%

Heading reference: Different categories of profit, Other profitability ratios

c. 28.50%

Heading reference: Different categories of profit, Other profitability ratios

d. 31.50%

Heading reference: Different categories of profit, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 15

15) In the financial statements for the year ended 30 September 2021 Ines Limited reports revenue of £600,000, cost of sales of £270,000, administration expenses of £80,000, finance income of £12,000, finance expense of £24,000 and selling and distribution costs of £76,000. What is Ines Limited’s profit before tax % for the financial year ended 30 September 2021?

a. 23%

Heading reference: Different categories of profit, Other profitability ratios

b. 27%

Heading reference: Different categories of profit, Other profitability ratios

c. 29%

Heading reference: Different categories of profit, Other profitability ratios

d. 55%

Heading reference: Different categories of profit, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 16

16) In the financial statements for the year ended 30 June 2021, Marcelo Limited reported revenue of £850,000, operating profit of £221,000, finance income of £34,000 and a taxation charge of £85,000. What is Marcelo Limited’s profit before tax % for the financial year ended 30 June 2021?

a. 30%

Heading reference: Different categories of profit, Other profitability ratios

b. 22%

Heading reference: Different categories of profit, Other profitability ratios

c. 20%

Heading reference: Different categories of profit, Other profitability ratios

d. 12%

Heading reference: Different categories of profit, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 17

17) For the financial year ended 30 November 2021 Mariana Limited reported revenue of £400,000, operating profit of £140,000, finance income of £3,000, finance expense of £10,000 and a taxation charge of £27,000. What is Mariana Limited’s profit after tax % for the financial year ended 30 November 2021?

a. 25.00%

Heading reference: Different categories of profit, Other profitability ratios

b. 26.50%

Heading reference: Different categories of profit, Other profitability ratios

c. 30.00%

Heading reference: Different categories of profit, Other profitability ratios

d. 33.25%

Heading reference: Different categories of profit, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 18

18) In the financial statements for the year ended 30 June 2021, Javier Limited reported revenue of £900,000, operating profit of £270,000, finance income of £54,000, finance expense of £36,000 and a taxation charge of £63,000. What is Javier Limited’s profit after tax % for the financial year ended 30 June 2021?

a. 13%

Heading reference: Different categories of profit, Other profitability ratios

b. 21%

Heading reference: Different categories of profit, Other profitability ratios

c. 25%

Heading reference: Different categories of profit, Other profitability ratios

d. 32%

Heading reference: Different categories of profit, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 19

19) In the financial statements for the year ended 30 September 2021, Diego Limited reported revenue of £500,000, operating profit of £200,000, finance expense of £50,000 and a taxation charge of £30,000. What is Diego Limited’s profit after tax % for the financial year ended 30 September 2021?

a. 24%

Heading reference: Different categories of profit, Other profitability ratios

b. 30%

Heading reference: Different categories of profit, Other profitability ratios

c. 40%

Heading reference: Different categories of profit, Other profitability ratios

d. 44%

Heading reference: Different categories of profit, Other profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 20

20) The operating profit % for Jatin Limited has risen this year. Which of the following statements would not be a potential explanation for the increase in operating profit %?

a. A reduction in the number of administrative staff during the year.

Heading reference: Profitability ratios

b. A reduction in advertising expenditure this year.

Heading reference: Profitability ratios

c. A decrease in the cost of raw materials used in production with no corresponding decrease in selling prices.

Heading reference: Profitability ratios

d. An increase in the returns on bank deposits during the year.

Heading reference: Profitability ratios

Type: multiple response question

Title: Chapter 08 Question 21

21) Which of the following factors will increase the profit before tax % of a bank? Please select all that apply.

Heading reference: Profitability ratios

a. Reduced irrecoverable debts.

b. Lower interest rates for savers.

c. Higher staff salaries.

d. Higher interest rates for borrowers.

Type: multiple response question

Title: Chapter 08 Question 22

22) Which of the following factors will decrease the operating profit % of a retailer? Please select all that apply.

Heading reference: Profitability ratios, Sales and profit per unit of input resource

a. An increase in the minimum wage paid to shop assistants.

b. Selling more goods per square metre of store space.

c. Not increasing selling prices in line with increases in purchase prices.

d. More goods being included in the twice-yearly sale.

Type: multiple response question

Title: Chapter 08 Question 23

23) Which of the following factors will increase the gross profit % of an academic book publisher? Please select all that apply.

Heading reference: Profitability ratios

a. Bulk buying paper resulting in bulk discounts from suppliers.

b. Rival publishers publishing text books on the same subject.

c. A reduction in printing ink costs.

d. An increase in sales.

Type: true-false

Title: Chapter 08 Question 24

24) Propark is a retailer selling clothes to the public from its stores across the country. Shirts sell for £30 each. Each shirt costs Propark £16 to buy from its suppliers. The suppliers reduce the cost of each shirt by £1. Propark passes on this purchase price reduction to its customers and reduces the selling price of shirts in its stores by £1. This reduction in purchase and selling prices will have no effect on the gross profit % generated on the sale of each shirt.

a. True

Heading reference: Profitability ratios

b. False

Heading reference: Profitability ratios

Type: true-false

Title: Chapter 08 Question 25

25) A popular accounting text book sells for £35. Costs of producing each book are £24. Paper and ink costs increase by £1 per book. The marketing manager proposes increasing the selling price of each book to £36. He says: “increasing the cost of each book by £1 covers the increase in costs and maintains the gross profit % on each book.”

a. True

Heading reference: Profitability ratios

b. False

Heading reference: Profitability ratios

Type: multiple choice question

Title: Chapter 08 Question 26

26) Jorge Limited has current assets of £4.5m and non-current assets of £12.5m. In the year ended 31 December 2021, Jorge Limited generated revenue of £25.5m. What is Jorge Limited’s non-current asset turnover?

a. £0.49

Heading reference: Non-current asset turnover

b. £1.50

Heading reference: Non-current asset turnover

c. £2.04

Heading reference: Non-current asset turnover

d. £5.67

Heading reference: Non-current asset turnover

Type: multiple choice question

Title: Chapter 08 Question 27

27) Rafael Limited has property, plant and equipment of £8.0m, non-current asset investments of £1.5m, and intangible assets of £2.5m at 31 October 2021. In the year ended 31 October 2021, Rafael Limited generated revenue of £34.0m. What is Rafael Limited’s non-current asset turnover?

a. £2.83

Heading reference:

Introduction

Non-current assets

Non-current asset turnover

b. £3.58

Heading reference:

Introduction

Non-current assets

Non-current asset turnover

c. £4.25

Heading reference:

Introduction

Non-current assets

Non-current asset turnover

d. £8.50

Heading reference:

Introduction

Non-current assets

Non-current asset turnover

Type: true-false

Title: Chapter 08 Question 28

28) The lower an organization’s revenue and profit per employee, the more efficiently the organization is working to generate returns to satisfy the business’s objectives of profit and revenue growth.

Incorrect

a. True

Heading reference: Revenue and profit per employee

b. False

Heading reference: Revenue and profit per employee

Type: multiple choice question

Title: Chapter 08 Question 29

29) For the year ended 31 October 2021, Jasvinder plc has a profit before tax of £5.7m, an income tax charge of £2.3m, preference dividends of £0.4m and 9m ordinary shares in issue throughout the year. What are Jasvinder plc’s earnings per share for the year ended 31 October 2021?

a. 33.33 pence

Heading reference: Earnings per share (EPS)

b. 37.78 pence

Heading reference: Earnings per share (EPS)

c. 42.22 pence

Heading reference: Earnings per share (EPS)

d. 63.33 pence

Heading reference: Earnings per share (EPS)

Type: multiple choice question

Title: Chapter 08 Question 30

30) For the year ended 31 March 2022, Parvinder plc has a profit before tax of £8.0m, an income tax charge of £2.0m, and issued ordinary share capital of £2.0m made up of 25 pence shares. What are Parvinder plc’s earnings per share for the year ended 31 March 2022?

a. 400 pence

Heading reference: Earnings per share (EPS)

b. 300 pence

Heading reference: Earnings per share (EPS)

c. 100 pence

Heading reference: Earnings per share (EPS)

d. 75 pence

Heading reference: Earnings per share (EPS)

Type: multiple choice question

Title: Chapter 08 Question 31

31) For the year ended 31 December 2021, Manjinder plc has a profit after tax of £5.0m. Issued share capital of £4.0m is made up of 4 million 50 pence preference shares which carry a dividend rate of 6% and ordinary share capital of £2.0m made up of shares with a par value of 10 pence each. What are Manjinder plc’s earnings per share for the year ended 31 December 2021?

a. 20.33 pence

Heading reference: Earnings per share (EPS)

b. 23.80 pence

Heading reference: Earnings per share (EPS)

c. 24.40 pence

Heading reference: Earnings per share (EPS)

d. 122.00 pence

Heading reference: Earnings per share (EPS)

Type: multiple choice question

Title: Chapter 08 Question 32

32) The market value of one ordinary share in Jermaine plc is 240 pence. The profit for the latest financial year to 30 April 2021 is £17.5m after charging income tax of £4.5m. Jermaine plc has 30m preference shares of £1 each in issue and these preference shares have a dividend rate of 5%. There were 70m ordinary shares in issue throughout the financial year ended 30 April 2021. What is Jermaine plc’s P/E ratio?

a. 9.60

Heading reference: Price/earnings ratio (the P/E ratio)

b. 10.50

Heading reference: Price/earnings ratio (the P/E ratio)

c. 12.92

Heading reference: Price/earnings ratio (the P/E ratio)

d. 14.61

Heading reference: Price/earnings ratio (the P/E ratio)

Type: multiple choice question

Title: Chapter 08 Question 33

33) The market value of one ordinary share in Alberto plc is 600 pence. The profit before tax for the company’s latest financial year to 30 September 2021 is £20m. Tax is charged on profit before tax at the rate of 25%. Alberto plc has ordinary share capital of £5m made up of shares with a par value of 20 pence each. Alberto plc has no preference shares in issue. What is Alberto plc’s P/E ratio?

a. 1.50

Heading reference: Price/earnings ratio (the P/E ratio)

b. 2.00

Heading reference: Price/earnings ratio (the P/E ratio)

c. 7.50

Heading reference: Price/earnings ratio (the P/E ratio)

d. 10.00

Heading reference: Price/earnings ratio (the P/E ratio)

Type: multiple choice question

Title: Chapter 08 Question 34

34) For the year ended 30 November 2021, Trample plc has a profit after tax of £5.0m. Issued share capital of £8.0m is made up of six million 50 pence preference shares which carry a dividend rate of 5% and ordinary share capital of £5.0m made up of shares with a par value of 25 pence each. The current market price of one ordinary share in Trample plc is 400 pence. What is Trample plc’s price earnings ratio?

a. 6.40

Heading reference: Price/earnings ratio (the P/E ratio)

b. 16.00

Heading reference: Price/earnings ratio (the P/E ratio)

c. 16.49

Heading reference: Price/earnings ratio (the P/E ratio)

d. 17.02

Heading reference: Price/earnings ratio (the P/E ratio)

Type: true-false

Title: Chapter 08 Question 35

35) The lower the market’s confidence in a company, the higher the P/E ratio.

a. True

Heading reference: Price/earnings ratio (the P/E ratio)

b. False

Heading reference: Price/earnings ratio (the P/E ratio)

Type: multiple choice question

Title: Chapter 08 Question 36

36) Marmora Limited makes up its financial statements to 30 September every year. On 30 November 2020, Marmora Limited paid dividends of £15,000. Profit for the year to 30 September 2021 was £75,000 and a dividend of £30,000 was paid on 28 September 2021. Marmora Limited had 150,000 ordinary shares in issue throughout the financial year to 30 September 2021. What is the dividend per share for Marmora Limited for the year ended 30 September 2021?

a. 10 pence

Heading reference: Dividend per share (DPS)

b. 20 pence

Heading reference: Dividend per share (DPS)

c. 30 pence

Heading reference: Dividend per share (DPS)

d. 50 pence

Heading reference: Earnings per share (EPS), Dividend per share (DPS)

Type: multiple choice question

Title: Chapter 08 Question 37

37) Azov Limited makes up its financial statements to 30 April every year. Azov Limited has share capital of £4,000,000 made up of 2,000,000 preference shares of £1 each and £2,000,000 of ordinary shares of 50 pence each. The preference shares carry a dividend rate of 5%. Total ordinary and preference dividends of £750,000 were paid out during the year to 30 April 2021. What is the dividend per ordinary share for Azov Limited for the year ended 30 April 2021?

a. 12.50 pence

Heading reference: Dividend per share (DPS)

b. 16.25 pence

Heading reference: Dividend per share (DPS)

c. 18.75 pence

Heading reference: Dividend per share (DPS)

d. 32.50 pence

Heading reference: Dividend per share (DPS)

Type: multiple choice question

Title: Chapter 08 Question 38

38) Caspian Limited makes up its financial statements to 30 November every year. During the year to 30 November 2021, Caspian Limited made a profit after taxation of £800,000 and paid a dividend per ordinary share of 2 pence on 31 January 2021 and a further dividend per ordinary share of 4 pence on 30 September 2021. Caspian Limited has an ordinary share capital of £500,000 made up of shares with a par value of 12.5 pence. What is the pay-out ratio for Caspian Limited for the year ended 30 November 2021?

a. 3.75%

Heading reference: Earnings per share (EPS), Dividend per share (DPS)

b. 10.00%

Heading reference: Earnings per share (EPS), Dividend per share (DPS)

c. 20.00%

Heading reference: Earnings per share (EPS), Dividend per share (DPS)

d. 30.00%

Heading reference: Earnings per share (EPS), Dividend per share (DPS)

Type: multiple choice question

Title: Chapter 08 Question 39

39) The pay-out ratio is calculated by dividing:

a. Earnings per share by the dividend per ordinary share and multiplying by 100%.

Heading reference: Dividend per share (DPS), Dividend cover

b. Dividend per ordinary share by the current market price of one ordinary share and multiplying by 100%.

Heading reference: Dividend per share (DPS)

c. Dividend per ordinary share by the earnings per share and multiplying by 100%.

Heading reference: Dividend per share (DPS)

d. (Profit after tax and after preference dividends) by total ordinary dividends and multiplying by 100%.

Heading reference: Dividend per share (DPS), Dividend cover

Type: multiple choice question

Title: Chapter 08 Question 40

40) The ratio that expresses the distribution per share for a financial period is called the:

a. Dividend per share

Heading reference: Dividend per share (DPS)

b. Earnings per share

Heading reference: Earnings per share (EPS), Dividend per share (DPS)

c. Dividend yield

Heading reference: Dividend yield

d. Dividend cover

Heading reference: Dividend cover

Type: multiple choice question

Title: Chapter 08 Question 41

41) For the financial year ended 31 August 2021, Jeremies plc has profit before tax of £10.5m, an income tax charge of £2.8m, preference dividends of £0.2m, a total dividend per ordinary share for the year of 2.5 pence and 75m ordinary shares in issue throughout the financial year. At 31 August 2021, one ordinary share in Jeremies was valued at 250 pence. Your colleague has calculated a ratio of 4 from the above data. Which performance ratio has your colleague calculated?

a. Dividend cover

Heading reference: Dividend cover

b. Dividend yield

Heading reference: Dividend yield

c. Earnings per share

Heading reference: Earnings per share (EPS)

d. Price/Earnings ratio

Heading reference: Price/earnings ratio (the P/E ratio)

Type: multiple choice question

Title: Chapter 08 Question 42

42) Tiddler Limited has dividends per share of 30 pence, dividend cover of 3 times, 300,000 ordinary shares in issue, 200,000 preference shares of £1 each with a dividend rate of 6% and a taxation charge for the year of £94,000. What is Tiddler Limited’s profit for the year?

a. £270,000

Heading reference:

Dividend per share (DPS) Dividend yield

Dividend cover

b. £282,000

Heading reference:

Dividend per share (DPS) Dividend yield

Dividend cover

c. £364,000

Heading reference:

Dividend per share (DPS) Dividend yield

Dividend cover

d. £376,000

Heading reference:

Dividend per share (DPS) Dividend yield

Dividend cover

Type: multiple choice question

Title: Chapter 08 Question 43

43) Xenophon Limited has dividends per share for the financial year of 20 pence, 200,000 ordinary shares with a par value of £1 each, 100,000 preference shares of £1 each with a dividend rate of 10%, profits before taxation for the year of £300,000 and a taxation charge for the year of £50,000. What is Xenophon Limited’s dividend cover?

a. 6.00 times

Heading reference: Dividend cover

b. 6.25 times

Heading reference: Dividend cover

c. 7.25 times

Heading reference: Dividend cover

d. 7.50 times

Heading reference: Dividend cover

Type: multiple choice question

Title: Chapter 08 Question 44

44) Dividend cover is calculated by dividing:

a. The dividend on one ordinary share by the current market price of one ordinary share.

Heading reference: Dividend cover

b. The dividend on one ordinary share by the earnings per share.

Heading reference: Dividend per share (DPS)

c. Earnings per share by the ordinary dividend per share.

Heading reference: Dividend cover

d. The market value of one ordinary share by the earnings per share.

Heading reference: Price/earnings ratio (the P/E ratio)

Type: true-false

Title: Chapter 08 Question 45

45) The lower the dividend cover ratio, the more secure the dividend.

a. True

Heading reference: Dividend cover

b. False

Heading reference: Dividend cover

Type: multiple choice question

Title: Chapter 08 Question 46

46) Which one of the following statements is a description of dividend yield?

a. A measure of the pence of profit earned during an accounting period by each ordinary share.

Heading reference: Earnings per share (EPS), Dividend per share (DPS)

b. The distribution per ordinary share expressed as a % of the current market price of one ordinary share.

Heading reference: Dividend per share (DPS)

c. An indicator of the market’s confidence in a company.

Heading reference: Price/earnings ratio (the P/E ratio), Dividend per share (DPS)

d. How many times the current year ordinary dividend could be paid from profit for the year.

Heading reference: Dividend per share (DPS)

Type: multiple choice question

Title: Chapter 08 Question 47

47) Jingwen plc paid a dividend of 7 pence per ordinary share on 31 March 2021 and a dividend of 21 pence per ordinary share on 31 October 2021. Earnings per share for the financial year to 31 December 2021 were 42 pence. The current market price of one ordinary share in Jingwen plc is 350 pence. What is Jingwen plc’s dividend yield?

a. 2%

Heading reference: Dividend per share (DPS)

b. 6%

Heading reference: Dividend per share (DPS)

c. 8%

Heading reference: Dividend per share (DPS)

d. 14%

Heading reference: Dividend per share (DPS)

Type: multiple choice question

Title: Chapter 08 Question 48

48) During the financial year ended 31 August 2021, Xiao plc paid total dividends of £480,000 including £120,000 of preference dividends. Xiao plc has £1,000,000 of ordinary share capital made up of shares with a par value of 25 pence. Earnings per share for the financial year ended 31 August 2021 were 24 pence. The current market price of one ordinary share in Xiao plc is 300 pence. What is Xiao plc’s dividend yield?

a. 3%

Heading reference: Dividend per share (DPS)

b. 4%

Heading reference: Dividend per share (DPS)

c. 8%

Heading reference: Dividend per share (DPS)

d. 12%

Heading reference: Dividend per share (DPS)