Summary financial information for SIMOS CO is given below, covering the last two
ID: 2501740 • Letter: S
Question
Summary financial information for SIMOS CO is given below, covering the last two years.
2010 2011
Market Share Price
€1.50
€2.00
Balance Sheets
€
€
€
€
Fixed Assets
600,000
400,000
Current Assets:
Stock
100,000
100,000
Debtors
80,000
80,000
Cash
20,000
120,000
200,000
300,000
Current Liabilities:
(includes proposed dividends)
(176,000)
24,000
(153,000)
147,000
624,000
547,000
Capital and Reserves
Ordinary €1 shares
560,000
300,000
Preference €1 shares (6%)
50,000
Reserves – P&L a/c
4000
97,000
8% Debentures
60,000
100,000
624,000
547,000
Income Statements:
Sales
1,040,000
698,000
Cost of Sales
728,000
193,000
Gross Profit
312,000
505,000
Expenses
(includes debenture interest)
236,800
405,000
Net Profit Before tax
75,200
100,000
Tax
17,200
23,000
Profit Before Dividends
58,000
77,000
Dividends
- Ordinary
28,000
32,000
- Preference
8,000
Retained Profit
30,000
37,000
Required
Evaluate the company's performance from the viewpoint of the shareholder. Ignore working capital.
Your answer should use appropriate ratios, including ROCE, Operating profit margin, Gearing ratio, interest cover, EPS and PE ratio.
Market Share Price
€1.50
€2.00
Balance Sheets
€
€
€
€
Fixed Assets
600,000
400,000
Current Assets:
Stock
100,000
100,000
Debtors
80,000
80,000
Cash
20,000
120,000
200,000
300,000
Current Liabilities:
(includes proposed dividends)
(176,000)
24,000
(153,000)
147,000
624,000
547,000
Capital and Reserves
Ordinary €1 shares
560,000
300,000
Preference €1 shares (6%)
50,000
Reserves – P&L a/c
4000
97,000
8% Debentures
60,000
100,000
624,000
547,000
Income Statements:
Sales
1,040,000
698,000
Cost of Sales
728,000
193,000
Gross Profit
312,000
505,000
Expenses
(includes debenture interest)
236,800
405,000
Net Profit Before tax
75,200
100,000
Tax
17,200
23,000
Profit Before Dividends
58,000
77,000
Dividends
- Ordinary
28,000
32,000
- Preference
8,000
Retained Profit
30,000
37,000
Explanation / Answer
Calculation of different ratios from the view point of Shareholders:
Year 2010 2011
1. Return on Capital Employed ( ROCE)
Pre Tax ROCE= EBIT/ Equity + Debt 80,000/564000+60000 92000/447000+100000
= 0.1282=12.82% =0.1681=16.81%
Post-Tax ROCE =
EAT+Interest/Equity + Debt 58,000+4800/564000+60000 77000+8000/447000+100000
= 0.1006 = 10.06% 0.1553 = 15.53%
2. Operating Profit Margin:
Operating Profit/Sales= 58000/1040000 = 0.0557=5.57% 77000/698000=0.1103=11.03%
3. Gearing ratio =
Pref. Capital+Debt /Equity shareholders fudns = 0+60000/564000= 10.63% `150000/397000=37.78%
4. Interest coverage ratio = EBIT/Interest 80,000/4800=16.67 times 108000/8000=13.5 times
5. Earnings per share =
Residual earnings i.e EAT/No. of ordinary shares 58,000/560000= 0.10 69000/300000 = 0.23
6. PE Ratio =
Market price per share/Earnings per share 1.50/0.10 = 15 2.00/0,23 =8.70
7. Return on Equiyt = EAT/Equity 58,000/564000=10.28% 77000/447000=17.22%
8. Dividend per share=
Total Equity dividend /No. of equity shares 28,000/560000=0.05 32000/300000=0.106
9. Dividend yield for equity shareholdes=
Dividend per share /Market price per share 0.05/1.50=3.33% 0.106/2=5.3%
10. Book value per share=Net worth/No. of equity shares 564000/560000=1.047 397000/300000=1.32
Coment: Return on Capital employed, OPerating profit margin is more in the year 2011 due ot more profit.Gearing ratio is also more in the year 2011 due to more fixed charge funds i.e preferece capital and Debentures. Interest coverage ratio is more in 2010 due to low interest and high profit in 2010. Earnigs per share is more in 2011 and P.E ratio is more in 2010 due to low EPS. Return on Equity and Dividend per share are more in 2011. Dividend yield and Book value per share are also more in 2011. I, conclude overall performance in 2011 is better than 2010
Note : 1. Capital Employed = Equty capital + Preference capital + reserves + Debentures
2. Equity = Equity capital + Preference capital +reserves
3. EAT = Earnings after tax
4. EBIT=Earnigns before interest and tax
5. Equity shareholders funds = Equity capital +reserves
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