Refer to Table 1.1. Calculate the change in the dividend yield between 2022 and 2023.

Mark scheme

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

1. [1] Dividend yield = dividend per share / market price per share × 100
2. [2] 2022 = 3/40 × 100 = 7.5%
3. [3] Change = 5.7 – 7.5
4. [4] = -1.8 percentage points
5. [4] The dividend yield has decreased by 1.8 / 7.5 × 100 = 24%
6. Shareholder – a person who has bought shares and owns part of AFF, whose objective is to receive a good return on their investment in the short and long term.
7. Dividend – a shareholder's part of the profit of AFF.
8. Dividend yield – dividend per share as a % of current market price of share.
9. Financial performance ratios, such as profit margin.
10. Other shareholder ratios.
11. Table 1.1 Financial data for AFF 2023: Revenue (m): 27 Operating profit (m): 1.4 Non-current liabilities (m): 20 Shareholders' equity (m): 72 Total dividend paid (m): 0.4 Dividend per share (): 2 Share price (at year end) (): 35 Dividend yield (5): 5.7 2022: Revenue (m): 25 Operating profit (m): 1.5 Non-current liabilities (m): 20 Shareholders' equity (m): 70 Total dividend paid (m): 0.5 Dividend per share (): 3 Share price (at year end) (): 40
12. Reference to answer to (a) fall in dividend yield of 1.8% as well as fall in share price of $5.
13. Increase in revenue $2m but decrease in profit $0.1m.
14. Gearing steady around 22% (21.7% in 2023).
15. Profit margin has decreased from 6% to 5.2%.
16. External environment and its impact on financial performance: Increase in inflation, Increase in minimum wage, Ageing population.
17. Sales are increasing which may suggest future growth, and this could result in higher profits and dividends thus pleasing shareholders.
18. Shareholders may have expected a decrease in profits due to inflation in the economy increasing AFF's costs so may be satisfied with current levels of profitability.
19. Gearing is low and steady at 22%, there is potential for the company to borrow in order to grow, so this may be encouraging in the longer term and shareholders may be prepared to wait for higher returns.
20. The falling share price and dividend yield may be a reason for shareholders to look unfavourably on this investment and sell their shares.
21. Attitude of shareholders will depend on whether they are investing for short or long term.
22. Impact of share price fall may depend on how much shareholders paid at the start.
23. Financial performance judgement needs more evidence, such as more previous years and also comparison with similar businesses.
24. Will financial objectives change with new CEO?
25. What other objectives may be important to shareholders that could make them less sensitive to small changes in financial performance?
26. Overall supported judgement.