Page 22 - CIMA SCS Workbook February 2019 - Day 2 Tasks

CIMA FEBRUARY 2019 – STRATEGIC CASE STUDY

Reference Materials – Email to Paul Pau from Pamela Simmons

Email

To: Paul Pau
From: Pamela Simmons
Subject: Return on equity

Hi Paul

I’ve been looking at Vita’s recently published accounts and I’m a bit concerned about the
performance of the company.

After a period of high prosperity, annual sales growth has slowed down significantly and, by my
reckoning, return on equity has decreased from 23.8% in 2017 to 7.6% in 2018.

My worry is that this will have sent a negative signal to our shareholders. Shareholders in Vita (a
listed company for nearly two years now) will have invested in the company because they want to
get a good return on their investment. If they are concerned about the returns they are getting, or
the prospects for good returns in the future, they might well sell off their shares causing the share
price to fall.

I think we ought to be considering possible growth options for Vita, so that we can give good
returns to our shareholders and increase their wealth.

At the next Board meeting, can we discuss this? I’m sure the other (less financially minded!)
directors would appreciate some of your expert analysis!

Thanks. Catch you later.

Pam

38 KAPLAN PUBLISHING