ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
Which of the following would be most likely to increase a company's dividend cover, assuming profit for the year stays the same?
Dividend cover is profit available to ordinary shareholders divided by ordinary dividends. With profit unchanged, paying a smaller dividend raises the ratio, whereas paying more lowers it. Issuing loan notes or revaluing land does not directly change either figure.
- APaying a higher ordinary dividend per share
- BReducing the ordinary dividend paidCorrect
- CIssuing more loan notes
- DRevaluing land upwards
Explanation
Dividend cover = profit attributable to ordinary shareholders / ordinary dividends. With profit unchanged, a smaller dividend increases the ratio. A higher dividend lowers it. Loan notes and revaluation do not alter either figure directly in the year.
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