Jiang Ltd has recently produced its financial statements for the current year. The directors of the company are concerned that the return on capital employed (ROCE) has decreased from 14% last year to 12% for the current year.The following reasons were suggested as to why this reduction in ROCE has occurred. an increase in the gross profit margin a reduction in sales revenue an increase in overhead expenses an increase in amount of inventories held the repayment of a loan at the end of the year an increase in time taken for trade receivables to be paid Taking each of these 6 suggested reasons in turn, state, with reasons, whether each of them could lead to a reduction in ROCE ROCE = (EBIT/Sales Revenue) x (Sales revenue/Long term capital)
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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Jiang Ltd has recently produced its financial statements for the current year. The directors of the company are concerned that the return on capital employed (ROCE) has decreased from 14% last year to 12% for the current year.
The following reasons were suggested as to why this reduction in ROCE has occurred.-
an increase in the gross profit margin
-
a reduction in sales revenue
-
an increase in overhead expenses
-
an increase in amount of inventories held
-
the repayment of a loan at the end of the year
-
an increase in time taken for trade receivables to be paid
Taking each of these 6 suggested reasons in turn, state, with reasons, whether each of them could lead to a reduction in ROCE
ROCE = (EBIT/Sales Revenue) x (Sales revenue/Long term capital)
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