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Finance assignment question 3

Price to Earning Ratio ASOS

  1. ASOS P/E is 74 which is extremely high when compared to the sector average of 17. This implies that investors are willing to pay $74 dollars for each dollar of earning by ASOS, indicating strong investors sentiments toward the company.
  2. M&S P/E, on the other hand, is 11.1 which is below the sector average of 17, implying that investors do not have strong favor for the company as compared to other companies within the sector
  3. From 2016 to 2017, the P/E of ASOS dropped by half from 154.6 to 74. In understanding such changes, we see that share price increased by approximately 25% from 2016 to 2017 however the P/E fell by more than 50%. This implies that earnings have shot past that of price as seen in the 161% increase in EPS, but the price had not keep up in tandem, resulting in the fall of P/E. This may imply that investors think that the growth of the company was not sustainable.

Dividend Growth

  1. In the case of ASOS, they do not pay out a dividend
  2. In the case of M&S we see that Dividend has grown from 18.4 in 2016 to 23.3 in 2017. Through this, we see a marked increase of 26.8% growth in dividend payouts.

Dividend Policy

  1. When looking at dividend yield for M&S 2017 dividend yield registered at 6.96% while 2016 dividend yield registered at 4.48%. Showing that not only did dividend grow but it grew faster than that of the share price, resulting in a higher dividend yield.
  2. When analyzing this growth, we see that the share price over 2016 to 2017 had grown by 22.7% from 334.6 pence to 410.6 pence
  3. So given that the growth of the absolute dividend grew at 26.8% while the growth of share price was 22.7%, across 2016 to 2017, this explains how dividend yield had increased as the growth of dividend is greater than the growth of share price. As such, this shows that an investment in marks and Spenser would yield greater returns.

Other

Gearing Ratio

D/E Ratio

Tax Leakage