A manufacturer of reusable drinks containers is considering exporting to airline suppliers, including a distributor that serves Emirates. The company has in...
Question 1 Report
A manufacturer of reusable drinks containers is considering exporting to airline suppliers, including a distributor that serves Emirates. The company has invested $2400000 in machinery and working capital. Its forecast annual operating profit is $360000. Shareholders have asked for a profit objective and may expect dividends if the objective is achieved. However, the directors also want sufficient cash flow to finance export orders, which may take several months to be paid for. The company asks candidates to use the figures and give a precise answer.
(a) Define a shareholder. [2]
(b) State two objectives shareholders may want the company to achieve. [2]
(c) Define dividends. [2]
(d) Calculate the return on capital employed, using: return on capital employed = operating profit / capital employed x 100. [4]
Answer Details
(a) A shareholder is a person or organisation that owns shares in a company. [2]
(b) Shareholders may want higher profit, dividends, growth in the value of their shares, or business survival. Any two gain credit. [2]
(c) Dividends are payments made to shareholders from company profit. [2]
(d) Use operating profit divided by capital employed:
\[\text{ROCE}=\frac{\$360000}{\$2400000}\times100\]
\[=0.15\times100=15\%\]
The return on capital employed is 15%. [4]
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