For the financial year ended 31 August 2019, Jeremies plc has profit before tax of £10.5m, an income tax charge of £2.8m, preference dividends of £0.2m, a total dividend per share for the year of 2.5 pence and 75m ordinary shares in issue throughout the financial year. At 31 August 2019, one ordinary share in Jeremies was valued at 250 pence. Your colleague has calculated a ratio of 4 from the above data. Which ratio has your colleague calculated?

Question

Quizplus · Accepted Answer

Dividend cover is calculated as earnings available to ordinary shareholders divided by the total ordinary dividends paid. Here, earnings available are £10.5m - £2.8m - £0.2m = £7.5m, and total ordinary dividends are 75m shares * 2.5 pence = £1.875m. Thus, dividend cover is £7.5m / £1.875m = 4.

For the Financial Year Ended 31 August 2019, Jeremies Plc