= 130 cents Ρone part correct
Calculate the return on average shareholders’ equity.
4 225 000 = 23,1% Ρ or 23,08% or 23,07% or 23% one part correct
Calculate the debt-equity ratio.
2 000 000 Π: 4 450 000Π
= 0,4 : 1Ρ (or 0,5:1) one part correct
The directors proposed to expand the business operations in the new financial year. One of the directors suggested that they finance the expansions by taking a loan of R1 000 000, instead of issuing new shares to the public. Quote and explain two financial indicators to support his opinion.
Financial indicator Π Π
Trend Π Π
Explanation Π Π
It has increased from 0,34: 1 to 0,45:1.
Company still has a low financial risk.
It has increased from 18% to 26%
Company is positively geared as it exceeds the rate of borrowing which currently is 12%.
Calculate the amount of dividends Bongani would earn for the financial year ending 31 October 2014.
32 000 Π x 110 cents Π = R35 200 Ρ one part correct
(R1,10)
Should Bongani be satisfied with the dividend policy of Classic Limited? Quote and explain relevant financial indicators to support your answer.
Yes/No Π
Indicator Π
Figures Π
Explanation Π
Explanation for yes:
EPS was 130 cents and DPS was 110 cents.
(110/130 x 100) 85% of earnings given to shareholders, compared to (75/94 x 100) 80% given in the previous financial year.
The dividends have increased from 75 cents to 110 cents.
Explanation for no:
EPS was 130 cents and DPS was 110 cents.
(110/130 x 100) 85% of earnings given to shareholders, compared to (75/94 x 100) 80% given in the previous financial year.
More is being paid out on dividends and less is being retained for future expansion.
Bongani wants to sell his shares in Classic Ltd and invest his funds in an alternative investment. You disagree with him. Quote and explain ONE relevant financial indicator, other than dividends, to discourage him from selling his shares. Your answer must include the actual figure/ratio/percentage.
ROSHE is 23,1% Ρ see 4.1.5
Greater than the return on fixed deposits, 5,5%. Π
Strong performance of the company may continue in the future to offer greater returns to Bongani. ΠΠ Or
The value of his share has increased from R4,75 (475 cents) to R9,50 (950 cents). (two marks)
This is a capital growth of 100% in just three years. His investment in the company has increased from R152 000 (32 000 x R4,75) to R304 000. Such high returns will not be earned on outside investments. (two marks)