Page 28 - MCS August Day 1 Suggested Solutions

CIMA AUGUST 2018 – MANAGEMENT CASE STUDY

Dividend cover – 4,755 / 2,377 2.0 times
parent shareholders

Dividend as % of profit 2,377 / 4,755 50.0%
– parent shareholders

Consolidated SOCIE (to calculate if dividends paid)
Parent NCI
shareholders shareholders
F$m F$m
Retained earnings b/f 21,379
Profit for year 4,755
Dividends (balancing figure) (2,377)
Retained earnings c/f 23,757

Analysis
All references to 2018 / 2017 are referring to the years ending 31 March 2018 / 31 March 2017
respectively.

Note that calculations for gearing have been based on the assumption that the non‐current
liabilities represent long‐term loans outstanding.

Financial performance
As Kira undertakes manufacture of scientific instruments, it would be useful to have an
understanding of how profitable (or otherwise) this activity is in comparison with its camera and
lens manufacturing activities.

Kira’s revenue increased by 12.4% in 2018 (a small reduction of 0.8% for Montel) compared to the
previous year with operating profit and pre‐tax profit increasing by 28.9% and 31.6 respectively
(compared with 9.9% and 10.8% for Montel).

Both the operating profit margin and pre‐tax profit margin of Kira improved from 2017 to 2018,
with the 2018 margins at 13.6% and 12.5% respectively, which is better than the margins achieved
by Montel of 10.15% and 8.7% respectively for 2018.

Kira achieved a return on capital (ROCE) of 5.2% in 2018, up from 4.1% in the preceding year.
Montel’s ROCE rose from 3.11% to 3.40% during the same period).

From 2017 to 2018, non‐current asset utilisation increased slightly, for each F$1 invested in non‐
current assets, Kira generated F0.40 revenue, an increase from F$0.38 in 2017.

A calculation of the dividend paid in 2018 identified that a dividend of F$2,377m was paid by Kira
in 2018, representing approximately 50% of the profit after tax for the year. Kira appears to be
able to afford these payments from a cash perspective as it has cash and equivalent balances of
over F$900m at 31 March 2018.

72 KAPLAN PUBLISHING