Hi, Can anyone please tell me how we arrived at the value for 'Revised Earnings attributable to shareholders' in Q19(ii) of May 2014? Thanks, Shiksha
Hi Shiksha Are you referring to the April 2014 IFoA paper? Assuming that you are, then the 'Revised earnings attributable to the shareholders' (49.5 million) looks to have been worked out by adjusting the 'earnings before interest and tax' (EBIT) for the revised amortisation basis, and then adding back interest and tax. So, revised EBIT = original EBIT + annual amortisation of rights based on 10 year assumption - annual amortisation based on 15 year assumptions = 58.2 + 40 - 24 = 74.2 million. Revised shareholder earnings = 74.2 -18 - 6.7 = 49.5 million (assuming interest and tax are unchanged) Best wishes Lynn
It could be paid out as a dividend to shareholders, or the company could retain these earnings on the balance sheet. I.e. they’ve made a profit, so their net assets have increased, the question is whether to pay some (or all) of that increase out to shareholders (which would be paid out of the company’s current assets). Whether or not a company pays a dividend, and how big that dividend is, depends on a number of factors including any dividend policy the company has and shareholder and market expectations. For example, young technology companies often will not pay dividends at all while they are in a rapid growth phase. They often don’t make a profit either, for many years! Even if they start making a profit, investors may expect them to just keep spending all their cash to grow the business, rather than handing out cash payments to investors in the form of dividends. The reason is that investors want to see their value of the company go up as much as possible so they can one day sell their shares at a big profit. On the other hand you might have a utilities company or a supermarket company, which often make reasonably stable profits and pay out a regular dividend to shareholders. If they don’t pay a dividend then shareholders might get upset and sell their shares, thus lowering the share price (which could make the company vulnerable to takeover). Markets also have dividend expectations, broadly speaking. For example, companies listed on the UK stock market are often expected by investors to pay out dividends more so than on the US stock market, where investors are happy for companies not to pay out dividends if they think this will help the companies grow in value more and faster. This is one reason you see some technology startups, even ones based in the UK, choosing to IPO in the US stock market rather than in the UK. It’s a more favourable market for their growth oriented strategies.
