Refer to Table 1.1. For 2024, calculate the price earnings ratio.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2024). The mark or mark type is shown in brackets.

1. [1] (a) PE Ratio = Market price per share / earnings per share = 4.00 / 0.6 = 6.67
2. [1] (a) Accept 6.7, 6.66
3. (b) ROCE = Profit from operations / Capital employed × 100
4. (b) Capital employed = issued shares + reserves + non-current liabilities
5. [1] (b) CE = 3 + 13.5 + 16 = 32.5m
6. [2] (b) ROCE = 2.6 / 32.5 × 100
7. [3] (b) ROCE = 8%
8. [3] (b) Accept 8
9. (b) Other answers and marks: ROCE for 2023 2.5 / 30.8 × 100 = 8.12% (2)
10. (b) Other answers and marks: One element of CE not included (2).
11. (b) Other answers and marks: 2.6/16.5 x 100 = 15.76%
12. (b) Other answers and marks: 2.6/29.5 x 100 = 8.81%
13. (b) Other answers and marks: 2.6/19 × 100 = 13.68%
14. A01 Knowledge and understanding: (c) Shareholder is an investor in the business seeking a return in the form of dividends and/or share price increase.
15. A01 Knowledge and understanding: (c) Understanding of relevant factors to shareholders including: Change in revenue – impact of increasing revenue on share price.
16. A01 Knowledge and understanding: (c) Understanding of relevant factors to shareholders including: Profitability - impacts dividends and share value.
17. A01 Knowledge and understanding: (c) Understanding of relevant factors to shareholders including: Dividend yield – the return to shareholders relative to share price.
18. A01 Knowledge and understanding: (c) Understanding of relevant factors to shareholders including: Changes in share price – link to capital gain to shareholder.
19. A01 Knowledge and understanding: (c) Understanding of relevant factors to shareholders including: Gearing ratio – links to risk of investment.
20. A01 Knowledge and understanding: (c) Understanding of relevant factors to shareholders including: PE ratio - reflects confidence of shareholders in future prospects of the business.
21. A01 Knowledge and understanding: (c) Understanding of relevant factors to shareholders including: Current ratio – solvency.
22. AO2 Application: (c) Increase in revenue of $2.7m.
23. AO2 Application: (c) Reduced operating profit margin – now 12.2%.
24. AO2 Application: (c) Reduced return on capital employed from 8.1% to 8%.
25. AO2 Application: (c) Reduction in dividend yield.
26. AO2 Application: (c) Increase in share price by 2.56%.
27. AO2 Application: (c) Plans for expansion.
28. AO2 Application: (c) Gearing 49.23% close to being highly geared.
29. AO2 Application: (c) Current ratio has improved from 0.6 to 0.8.
30. AO3 Analysis: (c) Share price is increasing which will encourage potential shareholders to purchase shares in the expectation of a capital gain in the future.
31. AO3 Analysis: (c) Increasing profit may result in higher dividends in the future and therefore support decision to buy more shares.
32. AO3 Analysis: (c) Dividend yield has decreased meaning that the return for shareholders is lower than in 2023. This suggests that potential shareholders would be less likely to purchase shares.
33. AO3 Analysis: (c) Expansion plans are ambitious which might result in higher profits in the future and therefore increase returns to shareholders.
34. AO3 Analysis: (c) Increased gearing could result in shareholders enjoying greater share of the benefits of future growth.
35. AO3 Analysis: (c) Increased gearing can also mean lower dividend payout to shareholders in the short term as there are increased interest payments which then lower the profit for the year so there is less left for the shareholders.
36. AO4 Evaluation: (c) Limited nature of the data in Table 1.1.
37. AO4 Evaluation: (c) Data only available for 2024 and 2023 making it difficult for shareholders to identify longer terms trends on which to base their decision.
38. AO4 Evaluation: (c) Need to compare with other businesses in the industry.
39. AO4 Evaluation: (c) Changes may reflect changes in the economy rather than successful decision making of CD.
40. AO4 Evaluation: (c) Depends on whether shareholders are focused on the short term or the long-term gains.
41. AO4 Evaluation: (c) Given the cost push inflation in the economy the performance of CD might be considered to be good – this may explain why the share price has increased.
42. AO4 Evaluation: (c) Depends on attitude toward risk as the business is relatively highly geared and the plans for expansion are costly and may fail.
43. AO4 Evaluation: (c) Most important data in Table 1.1 - Shareholders most concerned by capital gains from increasing share price and dividend returns.
44. AO4 Evaluation: (c) Qualitative factors also important such as: CD's plans for future expansion will impact risk and reward of shareholder investment.
45. AO4 Evaluation: (c) Quantitative data is objective data on which to base investment decision.