Chapter 19

Question 1

Asset turn over

Answer 1

Sales/capital employed

Question 2

Operational gearing

Answer 2

Fixed operating costs/variable operating costs
Or
Fixed operating costs/total operating costs
Or
Contribution/ PBIT

Question 3

Interest coverage

Answer 3

PBIT/interest expense

Question 4

Cash flow coverage

Answer 4

Cash from operations/ interest expense

Question 5

Earnings yield

Answer 5

EPS/ordinary share price

Assesses investors rate of return on their investment

Question 6

Dividend yield

Answer 6

Dividend per ordinary share/ordinary share price

Tells an investor the percentage of a company’s share price that it pays out in dividends each year

Question 7

Dividend payout ratio

Answer 7

Ordinary dividend/pat - pref dividend

Gives investors an indication of how much money a company returns to its shareholders compared to how much it reinvests in growth, pay off debt and add to cash reserves

Or DPS/EPS

Question 8

Dividend coverage

Answer 8

Pat - pref dividend / ordinary dividend

Provides an estimate for investors of the risk of not receiving dividend

Or EPS/DPS

Question 9

A company with low operating gearing has a high proportion of variable operating costs which rise/fall with revenues leading to relatively low volatility of profits

Answer 9

True