Business – 10.2 Analysis of published accounts – Investment ratios | e-Consult

10.2 Analysis of published accounts – Investment ratios (1 questions)

Login to see all questions.

Click on a question to view the answer

Method

Advantages

Disadvantages

Share Buy‑back

Increases earnings per share (EPS) and potentially share price.

Provides flexibility – can be timed to market conditions.

Tax‑efficient for shareholders in jurisdictions where capital gains are taxed lower than dividends.

Reduces cash reserves, possibly limiting future investment.

May be perceived as a lack of growth opportunities.

Can increase share price volatility if market interprets buy‑back as a signal of overvaluation.

Dividend Increase

Provides regular, predictable income to investors.

Signals confidence in sustainable earnings.

Can attract income‑focused investors, supporting share price stability.

Creates a fixed cash outflow, reducing funds for reinvestment.

Higher dividend commitments increase financial risk if earnings fall.

May be less tax‑efficient where dividends are heavily taxed.