PFM 1 – 2

JAY Co

The following scenario relates to questions 21–25.

Summary financial information for JAY Co is given below, covering the last two years.

21. What is the total shareholder return?

22. What is the percentage increase in return on capital (ROCE) for JAY Co between 20X7 and 20X8 (to one decimal place)?

23. Accounting profits may not be the best measure of a company’s performance. Which of the following statements support this theory?

1. Profits are affected by accounting policies.
2. Profits take no account of risk.
3. Profits take no account of the level of investment made during the year.
4. Profits are measures of short-term historic performance.

24. What is the operating profit margin for 20X8 (to one decimal place)?

25. As well as the information above, the following extra data is available:

20X8              20X7

Gearing (debt/equity)                             35.1%            49.9%

Interest cover (PBIT/interest)                  9.5                  7.2

Inflation                                                    3%                  3%

Based on all of the information available, are the following statements true or false?

1. Employees may be unhappy with their wages in 20X8.
2. Financial risk for shareholders appears to be a problem area.