Business – 10.2 Analysis of published accounts – Investment ratios | e-Consult
10.2 Analysis of published accounts – Investment ratios (1 questions)
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First calculate EPS and dividend per share (DPS) for each year:
| Year | EPS (£) | DPS (£) | Dividend cover |
| 2022 | 120 ÷ 30 = 4.00 | 30 ÷ 30 = 1.00 | 4.00 ÷ 1.00 = 4.0 |
| 2023 | 135 ÷ 30 = 4.50 | 36 ÷ 30 = 1.20 | 4.50 ÷ 1.20 = 3.75 |
| 2024 | 150 ÷ 30 = 5.00 | 45 ÷ 30 = 1.50 | 5.00 ÷ 1.50 = 3.33 |
Interpretation:
- All three years show a dividend cover above 3, indicating a strong ability to meet dividend payments.
- The cover has fallen from 4.0 in 2022 to 3.33 in 2024, reflecting a faster increase in dividends relative to earnings.
- While the ratio remains healthy, the downward trend suggests the company is adopting a more generous payout policy, which could limit future reinvestment if earnings growth slows.