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JAY Co

The following scenario relates to questions 21–25.

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

STATEMENT OF PROFIT OR LOSS (EXTRACT)

20X8

20X7

 

$'000

$'000

Revenue

74,521

68,000

Cost of sales

28,256

25,772

Salaries and wages

20,027

19,562

Other costs

11,489

9,160

Profit before interest and tax

14,749

13,506

Interest

1,553

1,863

Tax

4,347

3,726

Profit after interest and tax

8,849

7,917

Dividends payable

4,800

3,100

STATEMENT OF FINANCIAL POSITION (EXTRACT)

20X8

20X7

 

$'000

$'000

 Shareholders' funds

39,900

35,087

Long-term debt

14,000

17,500

 

53,900

52,587


Other information

Number of shares in issue ('000)                                                                   14,000                 14,000

P/E ratio (average for year)

JAY Co                                                                                                            14.0                    13.0

Industry                                                                                                            15.2                    15.0

Shareholders' investment

EPS                                                                                                                 $0.63                   $0.57

Share price                                                                                                      $8.82                   $7.41

Dividend per share                                                                                          $0.34                   $0.22

 

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.

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