Refer to Table 2. Calculate for 2021 the:

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. [1] operating profit margin = operating profit / sales revenue × 100 (1 if no calculation)
2. [2] 3.98 / 25.4 × 100 = 15.67%
3. [2] 15.67, 15.7 or 16
4. [1] Note: 0.1567, 0.157 or 0.16
5. [1] ROCE = operating profit / capital employed × 100
6. [2] $3.98m / $30m × 100
7. [3] = 13.27%
8. [3] 13.27, 13.3, 13
9. [2] Note: Use of profit for the year: 3.18m / 30m = 10.6%
10. [1] If no calculation, allow profit / capital employed × 100 OR profit for the year / capital employed
11. [1] Gearing ratio = non-current liabilities / capital employed × 100
12. [2] $15m / $30m × 100
13. [3] = 50%
14. [3] 50
15. [2] Other answer 0.5
16. [1] OR NCL / Shareholders equity × 100 OR debt / equity × 100
17. [1] $30m - $15m = $15m shareholders' equity (1 if no further calculation)
18. [2] So $15m / $15m × 100
19. [3] = 100%
20. [3] 100
21. [2] Other answer 1
22. [2] Knowledge: Understanding of factors influencing decision.
23. [2] Knowledge: Dividend yield – the % return based on current share price
24. [2] Knowledge: Dividend cover ratio – the ability of the company to pay dividends from profit
25. [2] Knowledge: ROCE - the operating profit as a % of capital employed
26. [2] Knowledge: Understanding of implications of new share issues, dilution of control and dividends
27. [2] Knowledge: Other reasons why investors might buy shares, e.g. level of return on other investments
28. [2] Knowledge: Other possible ways of financing trial, such as bank borrowing or reducing dividends
29. [2] Knowledge: Possible importance of gearing ratio
30. [2] Knowledge: Possible importance of operating profit margin
31. [2] Application: Use of calculated shareholder ratios and ROCE - OFR
32. [2] Application: Dividend yield – 8.57% is above average for the catering industry
33. [2] Application: Dividend cover - 2.12 times
34. [2] Application: ROCE - 13.27%
35. [2] Application: Capital cost of $1.5m – approximately 107 000 shares if they can be sold at current market price
36. [2] Application: TK have ambitious innovation plans for ADVS
37. [2] Application: In current economic situation interest rates are likely to be low, so incentive to purchase shares.
38. [2] Application: Gearing is currently 50%, relatively high
39. [4] Analysis: Reasons why share capital may be suitable
40. [4] Analysis: Above average dividend yield may attract investors and consequently a share issue is likely to be successful.
41. [4] Analysis: Share capital is permanent so does not need to be repaid and no interest costs therefore profitability would be greater.
42. [4] Analysis: Debt finance will increase gearing.
43. [4] Analysis: Reasons why share capital may not be suitable
44. [4] Analysis: Issuing new shares may lead to a dilution of control of TK for Thierry which he may not want.
45. [4] Analysis: Shareholders will expect dividends every year reducing retained profit whereas a loan would only incur expenses for the duration of the loan.
46. [4] Analysis: A share issue may result in a reduction in the share price which current shareholders will be unhappy about.
47. [4] Evaluation: Recommendation and justification of whether new share issue is the best source of finance. It depends on:
48. [4] Evaluation: Investors' willingness to buy shares
49. [4] Evaluation: Evaluation of alternative source of finance
50. [4] Evaluation: Debt finance (loans) has to be repaid with interest so may not be suitable as this is a high-risk investment
51. [4] Evaluation: Will banks be willing to lend money for high-risk investment
52. [4] Evaluation: This is a competitive industry, and innovation will be important, it has been one of the features of TK so shareholders may look favourably on this.
53. [4] Evaluation: ADV investment is speculative – will investors be willing to take the risk?
54. [4] Evaluation: Other evaluative comment e.g. importance of the trend of ratio results or comparison with similar businesses.