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Interpretation of Accounts The following figures have been taken from the Final Accounts of GJ plc, a manufacturer in the food processing sector, for the year ended 31/12/2014 - Leaving Cert Accounting - Question 5 - 2015
Question 5
Interpretation of Accounts The following figures have been taken from the Final Accounts of GJ plc, a manufacturer in the food processing sector, for the year ended ... show full transcript
Worked Solution & Example Answer:Interpretation of Accounts The following figures have been taken from the Final Accounts of GJ plc, a manufacturer in the food processing sector, for the year ended 31/12/2014 - Leaving Cert Accounting - Question 5 - 2015
Step 1
Opening stock
Answer
To calculate the opening stock, we need to determine the average stock. The average stock can be calculated from the formula:
ext{Average stock} = rac{ ext{Cost of sales}}{ ext{Stock turnover rate}}Given the cost of sales is €720,000 and the stock turnover rate is 12, the average stock is:
ext{Average stock} = rac{720,000}{12} = 60,000Next, we subtract the closing stock of €51,500 from the average stock:
Thus the opening stock for 2014 is €68,500.
Step 2
Earnings per share
Answer
Earnings per share (EPS) can be calculated using the net profit after preference dividends divided by the number of ordinary shares:
ext{Earnings per share} = rac{ ext{Net profit} - ext{Preference dividend}}{ ext{Number of ordinary shares}}Here, the net profit is €54,000 and the preference dividend is 5% of €75,000, which is €3,750:
ext{EPS} = rac{54,000 - 3,750}{650,000} = 7.54 ext{c}Step 3
Dividend yield
Answer
Dividend yield is calculated by dividing the dividend per share by the market price per share and multiplying by 100:
ext{Dividend yield} = rac{ ext{Dividends per share}}{ ext{Market price}} imes 100Given the dividends paid is €44,000 for 650,000 ordinary shares, the dividend per share is:
ext{Dividends per share} = rac{44,000}{650,000} = €0.068 ext{ or } 6.8 ext{c}Thus:
ext{Dividend yield} = rac{0.068}{0.95} imes 100 = 7.37 ext{ t %}Step 4
Step 5
Interest Cover
Answer
Interest cover is calculated as:
ext{Interest Cover} = rac{ ext{Net profit before interest}}{ ext{Debenture Interest}}Given the Net profit before interest is €54,000 and the debenture interest is €14,000:
ext{Interest Cover} = rac{54,000}{14,000} ext{ = } 3.86 ext{ times}