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Business_A-level_Cie

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  1. business-and-its-environment

    enterprise
    6 主题
  2. business-structure
    6 主题
  3. size-of-business
    3 主题
  4. business-objectives
    3 主题
  5. stakeholders-in-a-business
    2 主题
  6. external-influences-on-business
    12 主题
  7. business-strategy
    10 主题
  8. human-resource-management
    human-resource-management-hrm
    8 主题
  9. motivation
    4 主题
  10. management
    2 主题
  11. organisational-structure
    5 主题
  12. business-communication
    5 主题
  13. leadership
    2 主题
  14. human-resource-strategy
    3 主题
  15. marketing
    the-nature-of-marketing
    7 主题
  16. market-research
    3 主题
  17. the-marketing-mix
    6 主题
  18. marketing-analysis
    5 主题
  19. marketing-strategy
    3 主题
  20. operations-management
    the-nature-of-operations
    3 主题
  21. inventory-management
    2 主题
  22. capacity-utilisation-and-outsourcing
    1 主题
  23. location-and-scale
    2 主题
  24. quality-management
    1 主题
  25. operations-strategy
    4 主题
  26. finance-and-accounting
    business-finance
    2 主题
  27. sources-of-finance
    3 主题
  28. forecasting-and-managing-cash-flows
    1 主题
  29. costs
    4 主题
  30. budgets
    1 主题
  31. financial-statements
    4 主题
  32. analysing-published-accounts
    6 主题
  33. investment-appraisal
    2 主题
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The meaning and importance of return to investors

  • A financial return is the money made or lost on an investment over a period of time

  • Shareholders – and potential shareholders – look for financial returns on investments in the form of

    • Increased share price

    • Increased dividends

  • A series of ratios can be used to determine whether an initial or ongoing investment in a company is worthwhile

    • Poor investment performance can cause shareholder discontent, which may lead to changes to the board of directors at the AGM

The main investment ratios 

Dividend yield

Dividend cover

Price/earnings ratio

  • How much a company pays out in dividends each year relative to its share price

  • How well profits cover the dividend paid to shareholders

  • A measure of confidence investors have in a company’s ability to generate future returns

  • Financial advisors and the media are also interested in these ratios, as they can be used to report on business performance

Dividend yield

  • The dividend yield ratio shows how much a company pays out in dividends each year relative to its share price

  • It is used to compare investments in a company

    • With other investments, such as bank interest rates and dividend yields of other investments

    • Over time to analyse long-term performance of investments

  • Dividend yield is calculated using the formula

Dividend space yield space equals fraction numerator space Dividend space per space share over denominator Market space price space per space share end fraction space cross times space 100

Worked Example

Cymball Industries Plc issued shareholders a dividend per share of $0.87 in December 2023. Its share price at this time was $17.40

Calculate the dividend yield achieved by investors in Cymball Industries Plc in December 2023.

(2)

Step 1: Divide the dividend per share by the market price per share

equals space $ 0.87 space divided by space $ 17.40 equals space 0.05 (1)

 Step 2: Multiply the outcome by 100 and express as a percentage

equals space 0.05 space cross times space 100 equals space 5.00 percent sign (1)

  • Dividend yield is determined by the level of dividend issued by a company and the current market price of shares in the company

    • In general terms, the higher the dividend yield, the better

      • If the share price increases, dividend yield will fall

      • Despite this, investors may be keen to invest, as the rising share price indicates positive company performance 

      • If the issued dividend increases, the dividend yield will rise

    • However, a high dividend yield can occur as a result of a fall in the share price as a result of poor business performance

      • In these circumstances, an investment may be less attractive

Dividend cover

  • Dividend cover is a measure of how well profits cover the dividend paid to shareholders 

    • The ratio shows how easy it is for a company to continue to pay out its current dividend, given the profit it has generated

    • The outcome of the ratio refers to the number of times profit covers the total value of dividends issued

  • The ratio can be used to asse